Accounting methods
Hi there! Accounting methods are the way businesses keep track of their finances. It's like keeping score in a game. There are two types of accounting methods: cash basis and accrual basis.
Cash basis is like counting your allowance. You only record things when you actually receive or spend money. For example, if you get $5 from your parents, you add $5 to your allowance and you record it in your notebook. If you use $2 to buy a lollipop, you subtract $2 from your allowance and you record that too.
Accrual basis is like keeping track of everything that's going on, even if you haven't received or spent any money yet. For example, let's say you know your grandparents are going to give you $10 for your birthday next week. Even though you haven't received it yet, you know it's coming, so you record it in your notebook as $10. This is called an "accounts receivable." It's money you're going to receive in the future.
Another example of accrual basis is if you go to the store and buy a toy for $5. Even if you don't pay for it until next week, you still record it in your notebook as a $5 purchase. This is called an "accounts payable." It's money you owe someone else in the future.
So, in summary, accounting methods are like keeping score of your finances. Cash basis is only counting what you've actually received or spent, while accrual basis keeps track of everything, even if you haven't received or spent any money yet. Does that make sense?
Cash basis is like counting your allowance. You only record things when you actually receive or spend money. For example, if you get $5 from your parents, you add $5 to your allowance and you record it in your notebook. If you use $2 to buy a lollipop, you subtract $2 from your allowance and you record that too.
Accrual basis is like keeping track of everything that's going on, even if you haven't received or spent any money yet. For example, let's say you know your grandparents are going to give you $10 for your birthday next week. Even though you haven't received it yet, you know it's coming, so you record it in your notebook as $10. This is called an "accounts receivable." It's money you're going to receive in the future.
Another example of accrual basis is if you go to the store and buy a toy for $5. Even if you don't pay for it until next week, you still record it in your notebook as a $5 purchase. This is called an "accounts payable." It's money you owe someone else in the future.
So, in summary, accounting methods are like keeping score of your finances. Cash basis is only counting what you've actually received or spent, while accrual basis keeps track of everything, even if you haven't received or spent any money yet. Does that make sense?
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