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Businesses will use one of two accounting methods in their
system.
The cash method is the most simple in that the books
are kept based on the actual flow of cash in and out.
The accrual method is a little more complex, due to
the fact that income and expenses are recorded as they occur,
not necessarily when the cash changes hands. The accrual method
incorporates accounts receivable and accounts payable, which
are discussed elsewhere. The large majority of small organizations
use the cash method.
Accounting has a simple definition of a system which tracks
money coming in vs. money going out. The system will
help you to operate your venture proactively concerning important
financial decisions. Every accounting system has several key
components.
Even if you choose to farm out all your bookkeeping to an
outside accountant, you will need to understand the basic
elements of an accounting system. While some may very depending
on the type of business, these components typically consist
of the chart of accounts, the general ledger and internal
controls.
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