Accounting Practices and Entries

Accounting Practices and Entries

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Accounting Practices and Entries

In cash based accounting , sales are recorded and recognized when the business receives money for them . Besides , expenses are recognized and recorded upon actual payment . This method of accounting is mostly used by government entities or small businesses as they do not maintain any inventory and /or sell goods /services on credit . While using this method there are no expenses incurred in book-keeping any credit sales are not recognized and /or recorded . On cash

basis accounting , it is easier to determine profitability of the business at a glance without many calculations . In accrual accounting revenue is recognized and recorded as it is actually earned and realized /realizable . This means that credit sales are recognized if and only the business is certain that the payment will be made in the near future i .e . realizable . On the other hand , expenses are recognized and recorded against the period in which they were incurred regardless of them being paid or not . This is also referred to as matching concept in some business terms (Accounting Study Guide , 2010

One of the major differences between accrual and cash basis accounting is in regard to timing differences for recognizing income and expenses Accrued income is recognized and recorded even before receiving cash whereas accrued expense is recognized and recorded before paying for them . Deferred income is recognized and recorded only after receiving cash whereas deferred expense is recognized and recorded only after...