What is the SYSTEMS OF ACCOUNTING

                                     What is the SYSTEMS OF ACCOUNTING
The following are the main systems of recording business
transactions:

(a) Cash System. Under this system, actual cash receipts and actual cash

payments are recorded. Credit transactions are not recorded at all until the cash

in actually received or paid. The Receipts and Payments Account prepared in case

of non-trading concerns such as a charitable institution, a club, a school, a college,

etc. and professional men like a lawyer, a doctor, a chartered accountant 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 or loss for a particular period and will

not exhibit true financial position of the business on a particular day.

(b) Mercantile (Accrual) system. Under this system all transactions relating to

a period are recorded in the books of account i.e., in addition to actual receipts

and payments of cash income receivable and expenses payable are also recorded.

This system gives a complete picture of the financial transactions of the business

as it makes a record of all transactions relating to a period. The system being

based on a complete record of the financial transactions discloses correct profit

or loss for a particular period and also exhibits true financial position of the

business on a particular day.

SUMMARY=  Accounting can be understood as the language of financial decisions.

It is an ongoing process of performance measurement and reporting the results to

decision makers. The discipline of accounting can be traced back to very early

times of human civilization. With the advancement of industry, modern day

accounting has become formalized and structured. A person who maintains

accounts is known as the account. The information generated by accounting is

used by various interested groups like, individuals, managers, investors, creditors,

government, regulatory agencies, taxation authorities, employee, trade unions,

consumers and general public. Depending upon purpose and method, accountingcan be broadly three types; financial accounting, cost accounting and management

accounting. Financial accounting is primarily concerned with the preparation of

financial statements. It is used on certain well-defined concepts and conventions

and helps in framing broad financial policies. However, it suffers from certain

limitations.