There are mainly three basis or methods of accounting system in common usage,i.e
- Cash Basis:
Under the cash basis of accounting, actual cash receipts and actual cash payments are recorded. On this basis, revenue is recognized when cash is received or expenses are recognized when cash is paid. Such a method of accounting is usually followed by professionals such as doctors, lawyers, chartered accountants, and Non-profit organizations. - Accrual or mercantile basis:
Under the accrual basis of accounting, the revenue whether received or not has been earned or accrued during the accounting period, and expenses incurred whether paid or not being recorded. In other words, revenue is recognized when it is earned or accrued and expenses are recognized when these are incurred. e.g. (i) Any income earned whether received or not, (ii) Any expense incurred whether paid or not. - Mixed or Hybrid basis:
It is a combination of cash basis and accrual basis of accounting. Under a mixed basis of accounting, both cash basis and accrual basis are followed. Revenues and assets are generally recorded on a cash basis whereas expenses are generally taken on an accrual basis. The laws in India prohibit the use of this method.
