The Handbook of Financial Modeling by Jack Avon

Author:Jack Avon
Language: eng
Format: epub, pdf
ISBN: 9781484265406
Publisher: Apress

A cash accounting method only counts income when money is received. It does not keep track of accounts receivable, which means there is a direct compensation between the customer and vendor, as in Figure 8-3.

Figure 8-3The cash accounting does not have accounts receivable as it takes cash directly

You may be wondering how you would choose which one to use. In reality, small businesses tend to use both methods without realizing the difference until income tax time when they use an accounting general ledger item to manage their finances or bring pass their ledgers to the accountant. This general ledger (GL) system can handle both accrual and cash-based accounting. Almost all GL systems will allow users to create a setup where they can choose which type of accounting method to use. By and large, most businesses today use some kind of GL system for their accounting.

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