Cash-basis accounting is a method of bookkeeping that records financial events based on cash flows and cash position. Revenue is shown in the books when cash is received and expense is recognised when cash is paid.
On the other hand, under accrual accounting, revenue is shown in the balance sheet when it is earned and realised, regardless of when actual payment is received.
Overall, accrual-based accounting would create a desirable measure of the complete financial health of the government, he added.
Speaking about the issues involved in transitioning to the accrual system of accounting, Kaila said that there are various factors that have created a demand for a transition to accrual system of accounting, such as the changing information needs of the decision makers, the implications of the FRBM Act, outcome oriented budgeting, etc.