Question

Provide at least two examples of the accounting methods commonly in your first accounting course

Answer 1

Generally there are two main accounting methods used for record-keeping: First one is the cash basis and the second one is accrual basis,

Under Cash basis we recognize income and expenses according to real-time cash flow. Income is recorded upon receipt of funds and expenses are recorded as they are paid.

Whereas under Accrual basis we recognizes both income and expenses at the time they are earned or incurred, regardless of when cash associated with those transactions changes hands.

Examples:

1. Say we have paid $1400 as rent for 14 months, now under Cash basis we will recognize Whole $ 1400 as expenses as it is paid, while under Accrual basis we will record $ 1200 as an expense for 12 months and $ 200 will be shown as the Current asset.

2. Say we had made the Sales of 100$, payment of which is to be received next year, Now under Cash basis we will record this sale in next year as payment will be received next year while under Accrual basis we will record this sale in the current year.