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Bookkeeping 101 - A Beginning Tutorial

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Should you use Cash or Accrual Accounting?
cash accounting, accrual accounting, bookkeeping
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One of the first decisions you have to make when setting up your bookkeeping system is whether or not to use a cash or accrual accounting system. If you are operating a small, one-person business from home or even a larger consulting practice from a one-person office, you might want to stick with cash accounting. If you use cash accounting, you record your transaction when cash actually changes hands. Cash can be anything from actual money to electronic funds transfer. Sometimes firms start their business using cash accounting and switch to accrual accounting as they grow.

If you are going to offer your customers credit or if you are going to request credit from your suppliers, then you have to use an accrual accounting system. Using accrual accounting, you record purchases or sales immediately, even if the cash doesn't change hands until a later time, such as in the case of Accounts Payable or Accounts Receivable.

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