System or Method of Accounting
three method of Accounting is given below:-
- Cash System
- Accrual System
- Hybrid System
Cash System of Accounting:-
It is a system in which accounting entries are made only when cash is received or paid.
Accrual System/Mercantile system of Accounting:-
It is a system in which accounting entries are made on the basis of amount having become due for payment or receipt. Under the accrual basis of accounting, revenues are reported on the income statement when they are earned. (Under the cash basis of accounting, revenues are reported on the income statement when the cash is received.) Under the accrual basis of accounting, expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.
Mixed or Hybrid Basis of Accounting:-
When certain items of revenue or expenditure are recorded in the books of account on cash basis and certain items on mercantile basis, the basis of accounting so employed is called ‘Hybrid Basis of Accounting’.