The Cash Based accounting pertains to the management of individual’s personal monetary transactions. In this case, he keeps a track of the money he withdrew, deposited, gave or received from someone etc. This accounting comes to life when actual cash transactions take place.
The Accrual Accounting requires an accountant who notes the transactions even if no money has been actually exchanged. This method works on the principle of comparing or seeing the ratio of the expenses to expenditure. If the expenditure is more, you need to cut down your luxuries, if not then its always good to have some savings for future. This type of accounting tells you the amount that you owed; this might not match with the figure of your bank balance. In the language of accounting there are several key terms that one needs to familiar with.
Assets > Long term, short term
Liability > Long term, short term
Equity > Owners
Income (Also, know as revenue- Example Account receivable from customers)
Expenses ( Account payable to vendors)
On our next month issue a crucial discussion for the definition of these accounts.
Please see Cash & Accrual Bases – Part Two
