Here we have three system of Accounting
- Cash System
- Mercantile System (Accrual)
- Mixed System
Cash System: In the cash system
actual cash receipt and payments are recorded. Credit transactions are not
recorded at all until the cash is actually received or paid. The
receipts and payments Account prepares in case of non trading concerns such as
a charitable institution, a club,a school, a college etc. , can be cited as the
best example of cash system. this system does not make a complete
record of financial transactions of a trading period as it does not record
outstanding transactions like outstanding expenses and outstanding
incomes. The system being based on a record of actual cash receipts and actual
cash payments will not be able to disclose correct profit and loss for a
particular period and will not exhibit true financial position of the business
on a particular day
Mercantile System (Accrual): Under this
system all the transactions relating to a period are recorded in the
books of accounts, i.e in additions to actual receipt and payments of cash
income receivable and expenses payable are also recorded. This system
gives the complete picture of the financial transactions of the business as it
make a record of all transactions relating to a period. The system being based
on a complete record of the financial transaction discloses correct profit and
loss for a particular period and exhibits true financial position of
the business on a particular day.
Mixed System: In this system both
cash and mercantile system is followed. some record are kept under the cash
system where as other are kept under mercantile system.
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