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Methods of Accounting

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ibrahim sameer
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29 views

Methods of Accounting

Uploaded by

ibrahim sameer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Methods of Accounting

Generally, there are two main methods of recording financial transactions in the books of
accounts:-

1. Cash system: Under this system of accounting, financial transactions are not recorded
in the books until the related cash amount is actually received or paid. This system
does not make a complete record of financial transactions as it does not record credit
transactions and does not provide a true picture of profit and loss at a point in time.
2. Accrual system: Under this system of accounting, financial transactions are recorded
in the books of accounts as and when it accrues during the period. This system gives a
complete picture of financial transactions entered during the period as it makes record
of all the transactions entered during the period irrespective of cash received or paid.

Accounting is considered as ‘the language of business’. It is the language employed to communicate


financial information of the business to various parties interested in such information. When an event is to
be reported (say in English, Hindi, Kannada), certain rules are followed diligently so that what is
communicated is understood by the readers appropriately.

Similarly, in accounting also the events of the business are to be communicated to the users by following
certain set of rules diligently, so that the firm does not run into the risk of being misunderstood.
Accounting language has two important components – (1) symbols in the form of ‘Debit and Credit’ and
(2) grammatical rules in the form of generally accepted accounting principles (GAAP).

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