TYPES OF ACCOUNTING

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TYPES OF ACCOUNTING by Mind Map: TYPES OF ACCOUNTING

1. CASH BASIS

1.1. Cash Basis Accounting is an accounting method in which all the revenues of the company are recognized when there is actual receipt of the cash and all the expenses are recognized when they are actually paid.

1.1.1. In the cash basis accounting method, you record this as income as soon as the customer gives it to you. This month you also ordered 6,000 worth of materials, but they have not yet been delivered, invoiced, or paid for. You would not record this expense until you pay for the materials.

1.1.1.1. advantage - simple disadvantage -There are no accounts receivable or accounts payable records; this can create difficulties for businesses that do not receive payment for goods immediately, or have outstanding bills that have yet to be paid.

2. ACCURAL BASIS

2.1. the accrual accounting method accounts for revenue when the sale takes place and the expenses are counted when the goods or services are received regardless of whether the receivables are literally received or if the payments are paid

2.1.1. In this method the amount that is yet to reach the hands of the Client or person is take into account and the value of goods that have been produced and yet to enter into the market is also considered.

2.1.1.1. merits - It is used to show up the worth of an organization higher enabling them to work under high projects and ease the procedures of obtaining loans demerits - the tax amounts goes higher for higher worth of an organization.

3. PERCENTAGE COMPLETION

3.1. Percentage of completion method is an accounting method for recognizing not only revenue but also expenses for long-term projects which span over more than one accounting year.

3.1.1. In this method, revenue is recognized on a yearly basis as a percentage of work completed during that year.

3.1.1.1. merits - the flow of money and accounting takes place in a linear manner and hence less disputes

4. COMPLETE CONTRACT

4.1. In this kind of contrcating the amount is considered only after the completion of the entire project.

4.1.1. This method is enabled only for low time consuming contracts and involving more capital i.e., within a year.

4.1.1.1. merits - simpler,fixed profit and smooth way of finishing the work demerits - various disputes may arouse, the contracter may vary the goods and qualities leading to price change.