Accounting Methods. There’s More than One.
There are two different basic methods under which accounting can be performed. One is the cash basis, under which all accounting is done on a purely cash basis. The other is the accrual basis, under which companies make provisions for liabilities they have incurred and amounts due to them. This article will walk through the pros and cons of each.
Cash Basis of Accounting
Of the two accounting methods the cash basis is the most directly.
Nothing is entered into the accounting system or recognized until cash actually transfers hands. This is the type of accounting that most of us are familiar with in managing our personal finances, we see an expense when we pay for it and we see our assets/earnings when the cash enters our bank account. Many small companies apply this basis of accounting also because it requires very little work and in essence your bank statements pretty much do all the work for you. In this business a sale is recognized when they receive the cash for it and an expense is recognized when the payment is actually made. Pros of this method
- Very simple and direct,
- The bank does most of your â
By Jeffrey Glen