Accounting Principles - Essay Example

The American Institute of Certified Public Accountants (AICPA) has also defined the term accountancy as an art of recording the data, classifying and summarizing the data in financial aspects. Each of the transaction and event, which is, either a least part of a financial character, becomes a part of financial statement for the interpretation thereof. There are more than methods of recording the transaction and each of the entity is allowed to adopt the method, which suits it the best. Expense and income are the two pillars of business.

The methods of recording all the expenses and incomes are: The basics of both methods are same and the only difference is of time about the credit and debit of sale or purchase in the books of one’s account. If a business is using the cash method then its income will be counted when it will be receiving the cash or check in actual and expenses are counted when the amount is actually paid. On the other hand, under the more common accrual method of recording the data, entered transactions at the same time when they happen, in spite of when the money received or paid in actual (Morgan).

With the accrual method, income is counted when the sale occurs, and expenses are counted when you receive goods or services. In this method, the business does not need to wait till the actual receipt and payment of money happened. Nevertheless, it is difficult to forecast that when the business will get or pay the money and it is also not predictable that when the sale and purchase will occur. Not until you finish a service or deliver all the goods a contract calls for can do, you put the income down in your books (Morgan).

It is clear that there is no significant difference between these two methods and they both can produce the same results. If all the sales are paid at the same time the transaction occurred and the payment has been made at the same time of the transaction occurred, means the cash transactions, the