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.
- Mercantile Basis or Actual Basis of Accounting
- Cash Basis Accounting
- Mix Basis Accounting
It is on the basis of these accounting systems that business transactions are recorded.
- 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.
- 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:-
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
