ACCOUNTING PRACTICES

Accounting Practices

Accounting Practices

Cash Flow Accounting

Cash flow accounting, also known as accounting cash system is to recognize revenues when they are actually received and expenses when they get actually paid. Cash flow accounting does not follow the sequence of events in time it cannot lead to synthesis that include the description of the financial situation and measurement of results. On the other hand, it allows the evaluation of certain classes of income and expenditure and it also allows the control of agents who handle cash. Moreover, it avoids a class of income or expenditure exceeds the amount expected. (Bierman, 2009) This includes the following important points;

Revenues are recorded only when received.

Expenditures are recorded when they are disbursed.

The best example to explain this accounting system is when a sale is made on credit. In this case, the sale is made on credit, but because you do not enter anything in cash, so there are no sales or income recognized.

Accrual Accounting

Accrual accounting system includes the following important points;

Revenues are recorded as soon as assessment notices stipulating periodic contributions payable by each owner in relation to common charges are sent regardless of when the owners pay.

Expenditures are recorded upon receipt of invoices from suppliers, regardless of when the union will pay.

At the end of the year, there are accounting adjustments (accruals) which are made ??to ensure proper demarcation of expenditure.

Fund Accounting

The accounting system that emphasize on the accountability rather than the profitability is the fund accounting which is applied by the governments departments and the organizations which are non-profit in nature. In fund accounting, a fund serves as the self balancing set of accounts, set apart for the precise purposes in relations with the special limitations and the restrictions or the laws and regulations.

Cash is good for small businesses run by non-accountants. ...