Accounts
INTRODUCTION
Accounting systems have been used for thousands of years. As businesses grew, people to keep track of costs, profits, and losses invented accounting systems. Modern accounting measures and communicates financial information about an economic entity. This information is used to plan, control, evaluate, and make decisions about a business. The process begins with bookkeeping, which records transactions, such as checks and invoices, and summarizes these transactions in financial statements. Financial managers use the financial statements to raise and spend cash and make intelligent financial decisions. This section defines accounting and contrasts it with bookkeeping and finance functions.
Points to Remember
? Accounting is an information system that measures, processes, and communicates financial information about an identifiable economic entity.
? Bookkeeping, primarily a mechanical and repetitive record keeping function, is a subset of accounting.
? Finance is concerned with raising and using cash.
? Accounting supplies information about the company to financial managers so they can make intelligent financial decisions.
? Accounting enables managers to intelligently plan and control the business and make decisions based on objective information.
Definition:
Cash Method
Accrual Method
There are two basic accounting methods available to most small businesses: cash or accrual.
Cash method. If you use the cash method of accounting, you record income
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