Cash Accounting
All dealing relating to cash (there is no concept of credit) It is the accounting system in which events are recorded when actual cash / cheque is received or paid.
Accrual Accounting
• It is the accounting system in which events are recorded as and when they occur.
• This means that income is recorded when it is earned and expense is recorded when incurred i.e. the organization has obtained the benefit from it.
Income
• Income is the value of goods or services that a business charges from its customers.
Expenses
• Expenses are the costs incurred to earn revenue.
• In order to earn revenue, one has to spend some money such as the cost of goods that are sold or
the money paid to the individuals who are providing services plus other costs. These costs that are incurred / spent by the business to earn the revenue are the expenses of the business.
Net Profit = Income – Expenses
In accounting the expenses that provide benefit immediately are called “Revenue Expenses” and those expenses whose benefit last for a longer period are called “Capital Expenses”.
Liabilities
• Liabilities are the debts and obligations of the business.
