Recording of Business Transaction – Basis of Accounting

Accounting is a system that calls for a number of methods that are essential for recording business transactions that are made. For ensuring recording in a proper manner, there are three bases that are followed.

1. Mercantile Basis or Actual Basis of Accounting
2. Cash Basis Accounting

• Mix Basis Accounting

It is on the basis of these accounting systems that business transactions are recorded.

1. Mercantile Basis or Actual Basis of Accounting:

In this accounting basisboth cash and credit transactions can be taken into account and can be well followed by non-trading concerns. Apart from actual transactions, entries are made for those payments that are due and hence exhibit actual profit and loss in a company during a specific period.

Most trading companies in order to check out immediate gain or loss that a company is undergoing make use of this process to record transactions.

1. Cash Basis Accounting:

This is a record of cash transactions that are carried on within a company. In this record, actual cash payment and actual cash received are recorded and every recording is made after complete collection of cash.

In case of non-trading organizations as charitable institutions as well as clubs, and professionals as lawyers, doctors and chartered accountant, total recording of transactions is done basing on this format.

• Mix Basis Accounting

This is a combination of both the above-mentioned formats of accounting. Whereas certain accounts are maintained via cash basis format, others are recorded via mercantile basis.

In case of normal recording process, generally two types are applied:

• Single Entry Method
• Double Entry Method

Thus, details of these process are to be taken into account by a student.

Links of Previous Main Topic:-

• Introduction to accounting and branches of accounting
• Preparation of final accounts

Links of Next Financial Accounting Topics:-

• Single entry system of bookkeeping
• Double entry system of bookkeeping
• Classification of accounts
• Rules of double entry or accounting rules
• Accounting cycle
• Journal
• Ledger
• Trial balance
• Income
• Expenditure
• Assets
• Liabilities
• Final accounts
• Trading account
• Profit and loss account
• Balance sheet
• Adjustments in financial accounting