Accrual based accounting is a method of recording financial transactions where revenue and expenses are recognized when they are earned or incurred, rather than when payment is received or made. On the other hand, cash based accounting recognizes transactions only when cash is received or disbursed.Both methods have their pros and cons, but accrual based accounting is considered to be more advantageous in many situations. Here are some of the reasons why accrual based accounting is superior to cash based accounting.

First, accrual based accounting provides a more accurate picture of a company's financial health. This is because it recognizes revenue and expenses when they are earned or incurred, rather than when cash is received or disbursed. This means that a company's financial statements will show the impact of transactions, even if cash has not yet been received or disbursed. This can help companies make better decisions by providing a clearer picture of their financial position.

Second, accrual based accounting helps to smooth out the effects of seasonal or irregular cash flows. For example, if a company has a busy season in which it earns a lot of revenue but does not receive payment until the following year, accrual based accounting would recognize the revenue in the period in which it was earned. This can provide a more accurate picture of the company's financial performance, as it will not appear to have a large drop in revenue in the period in which payment is received.

Third, accrual based accounting can provide better information for budgeting and forecasting. When using accrual based accounting, companies can easily see the impact of transactions on their financial statements and can use this information to make better decisions about future spending and investments. This can help companies to make better decisions about their financial future and can help them to be better prepared for unexpected changes in their financial situation.

Finally, accrual based accounting is widely recognized and accepted by investors, lenders, and other stakeholders. This is because it is considered to be a more reliable and accurate method of accounting and provides a clearer picture of a company's financial health. This can make it easier for companies to secure financing, as lenders and investors will have a better understanding of the company's financial situation.

In conclusion, accrual based accounting is a superior method of accounting to cash based accounting in many situations. It provides a more accurate picture of a company's financial health, helps to smooth out the effects of seasonal or irregular cash flows, provides better information for budgeting and forecasting, and is widely recognized and accepted by stakeholders.

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