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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.


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