Accounting or bookkeeping is one of the most fundamental parts of a successful business. Choosing an accounting method should be one of the first decisions when beginning a business and should be appropriate to the type of business as well as goals of the business in the future. Four important terms to learn whether beginning a business or just learning about bookkeeping are, Cash Method, Accrual Method, Single Entry and Double Entry.
Cash Method for Accounting
Under the cash method of accounting money is accounted for on the books only when it is actually received or paid out. A payment is recorded when the actual payment is received by the company, not when the transaction is made or shipment occurs. (Most appropriate for sole proprietors, businesses with no inventory, small service companies.)
Bookkeeping Accrual Method
Under the accrual method, the records of expenses and receipts are recorded on the transaction date, not the date that actual cash or compensation changes hands. Sales would be entered on the books when the invoice is generated, regardless of whether payment has been received. Expense payments would be recorded on the date that product or services are ordered. (Most appropriate for large businesses, corporations, businesses with inventory and businesses that sell on credit.)