6 Steps Convert Accrual Basis to Cash Basis Accounting
                     6 Steps Convert 
Accrual Basis to 
Cash Basis 
Accounting
The importance of accurate accounting in businesses 
cannot be overstated. Thus, the account-related 
courses in Ahmedabad help professionals acquire the 
necessary skills and knowledge.
Accounting is the backbone of all business, and a 
crucial aspect of it is the method used to record 
financial transactions. Accrual and cash basis are two 
popular methods of accounting, each with its 
advantages and disadvantages. While Accrual basis 
accounting records transactions when incurred, cash-
basis accounting records transactions when payment 
has been made or received. Many businesses use 
accrual basis accounting, but some may switch to cash 
basis accounting for simplicity or tax purposes. In this 
article, we will explore the steps involved in converting 
accrual basis to cash basis accounting, focusing on the 
account-related courses offered in Ahmedabad that can 
help professionals acquire the necessary skills and 
knowledge for this process.
1. SUBTRACTING ACCRUED 
EXPENSES
One crucial step in converting from an accrual basis to a cash 
basis is subtracting accrued expenses.
Accrued expenses are costs that have been incurred but have 
yet to be paid. For example, suppose a business incurs a 
monthly electricity bill in January but gets paid in February. In 
that case, the expense is recorded as an accrued expense in 
January and delivered in February. When converting from an 
accrual basis to a cash basis, it is essential to subtract these 
accrued expenses to ensure that the financial statements 
accurately reflect the cash flow.
To correctly subtract accrued expenses, it is recommended to 
have a strong understanding of accounting principles and 
practices. Account-related courses in Ahmedabad offer 
comprehensive training on accounting and finance topics, 
including accrual basis and cash basis accounting, 
bookkeeping, and financial statement analysis.
2. SUBTRACTING 
ACCOUNTS RECEIVABLE
Another approach to convert accrual basis accounting to 
cash basis accounting is subtracting accounts receivable.
But what are accounts receivable? It is the amount owed 
to a business by its customers for goods or services on 
credit. By subtracting accounts receivable, a company 
can convert its accrual basis accounting to cash basis 
accounting. This is a basic conversion form to ensure 
that cash basis accounting provides a clearer picture of 
the business’s cash flow. It shows the actual cash 
available to the company, which is essential for making 
financial decisions. But converting accrual basis to cash 
basis via this method is a challenging feat. This is why 
there are many account-related courses in Ahmedabad 
to help those interested in learning more about 
accounting understand the principles and practices of 
the same.
3. SUBTRACTING 
ACCOUNTS PAYABLE
Accounts payable represent the amount a business 
owes to its suppliers for goods or services it has 
received but has yet to pay for. In accrual basis 
accounting, these amounts are recorded as liabilities, 
even if the payment has not been made. Whereas in 
cash basis accounting, only transactions resulting in 
cash exchange are recorded. Therefore to convert from 
accrual basis to cash basis accounting, the accounts 
payable must be subtracted from the accrual basis 
financial statements to ensure the accurate reflection 
of cash basis financial statements.
4. SHIFT PRIOR PERIOD 
SALES
An essential step in the transition from accrual to cash 
basis accounting is converting prior-period sales. Under 
accrual accounting, sales are recognized when the 
invoice is issued, regardless of when payment is 
received. This means sales from prior periods may still 
appear as accounts receivable in the current financial 
statements. For the conversion to cash accounting, 
these sales from previous periods must be converted 
from accrual accounting to cash accounting.
5. SHIFT CUSTOMER 
PREPAYMENTS
Customer prepayments refer to payments received 
from customers before the customer entails the 
required goods or services. For example, if a customer 
pays for future service, it is recorded as a customer 
prepayment. When converting from an accrual basis to 
a cash basis, it is essential to shift these customer 
prepayments to ensure that the financial statements 
accurately reflect the cash flow.
6. SHIFT PREPAYMENTS TO 
SUPPLIERS
To convert accrual to cash basis accounting for 
prepayments to suppliers, companies need to reverse 
the accruals and recognize the expenses of the 
received goods. This can be achieved through the 
following steps:
1. Identify the prepayments made to suppliers as 
accruals in the accounts payable.
2. Reverse the accruals by adjusting the accounts 
payable. You can do the following by recognizing the 
expenses in the form of a debit to the accounts 
payable and a credit to the expenses account.
3. Recognize the expenses of only the paid and 
received goods or services.
In conclusion
Converting from accrual to cash basis accounting 
methods can greatly benefit small business owners and 
individuals seeking to understand the financial health 
of their operations. They can understand their financial 
situation by shifting their focus from accruals to actual 
cash inflows and outflows. For those looking to expand 
their knowledge in this area, several account-related 
courses in Ahmedabad can provide them with the 
necessary skills and insights. Whether you want to 
change your accounting method or improve your 
understanding of finance, taking an account-related 
course in Ahmedabad is an excellent way to achieve 
your goals.
Article Source: 
https://s20.in/blog/6-steps-convert-accrual-basis-cash-b
asis-accounting/
 
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