Last week, I’ve read the differences between bookkeeping and accounting. There, the author discussed the differences between the two and also their similarities. Since, both are under accounting and only differs in scope, both will actually make use of the two principal methods in accounting.
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The 2 Methods of Accounting:
Cash Accounting
What’s important in cash accounting is the actual flow of money. Transactions are recorded into the books if money goes into and out of the business. If a transaction or deal has been made without money involved, then no transaction has been made at all which means no record will be made.
This accounting method is the most used accounting method for individuals because of its simplicity and is less time consuming. However, this method can ruin your records especially if you buy or sell products on credit.
Accrual Accounting
With the accrual method, you record income as soon as sale occurs, a service was rendered or a product has been sold, regardless of when you get paid.
By using the accrual method, you have a greater view of your business’ current financial situation because you record income on the books when it is truly earned, and you record expenses when they are incurred.
Pros and Cons
Comparing the two methods, I am in so much favor of using the accrual method than the cash method. With the accrual method, you will have a record of more transactions. If you make a sale on account, you would record the transaction at the time of sale, with an entry to the receivables account. Then, when the customer pays the bill, you will record the receipt on account as another transaction.
Tags:
Accountants in Dubai, Bookkeeping in Dubai, Part Time Accountants in Dubai, Accountants in UAE
For Accounting Firms in UAE, choose Embassy FS.
The 2 Methods of Accounting:
Cash Accounting
What’s important in cash accounting is the actual flow of money. Transactions are recorded into the books if money goes into and out of the business. If a transaction or deal has been made without money involved, then no transaction has been made at all which means no record will be made.
This accounting method is the most used accounting method for individuals because of its simplicity and is less time consuming. However, this method can ruin your records especially if you buy or sell products on credit.
Accrual Accounting
With the accrual method, you record income as soon as sale occurs, a service was rendered or a product has been sold, regardless of when you get paid.
By using the accrual method, you have a greater view of your business’ current financial situation because you record income on the books when it is truly earned, and you record expenses when they are incurred.
Pros and Cons
Comparing the two methods, I am in so much favor of using the accrual method than the cash method. With the accrual method, you will have a record of more transactions. If you make a sale on account, you would record the transaction at the time of sale, with an entry to the receivables account. Then, when the customer pays the bill, you will record the receipt on account as another transaction.
Tags:
Accountants in Dubai, Bookkeeping in Dubai, Part Time Accountants in Dubai, Accountants in UAE