Question

Name the method in which only cash and personal transactions are recorded. Answer in a word / phrase / term.

Answer 1

The difference between cash method and accrual method can be easily understood to you from few examples explained below:

For example, if you initiate an accounting service in month of December and offer INR 6 lacs of accounting services in December, but have not received any of the money from the customers till January, there will be an alteration in the income statements for December and January in the cash and accrual bases of accounting. Under the accrual method, your income statements will display INR 6 lacs of revenues in December and nothing of those services will be stated as revenues in January. Under the cash method, your income statement of December will display no revenues. In its place, the December services will be recounted as January revenues under the cash based method of accounting.

In above case, you will also find a difference on the balance sheet. In the accrual method, the balance sheet of December will report accounts receivable of INR 6 lacs and the assessed true profit will be supplemented to vendor’s equity or reserved earnings. In the cash method, the INR 6 lacs of accounts receivable will not be stated as an asset, in that case the true profit will not be encompassed in vendor’s equity or retained earnings.

There is another example of both these methods explained here. Your computer installation business completes a work in November, and doesn’t get remunerated till three months later in January. In the cash method, you would record the payment in month of January while in the accrual method you would record the revenue in your November books.

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Answer 2

The method in which only cash and personal transactions are recorded is known as the single entry system.

• Single Entry System is an imperfect and an unscientific method. It is more relevant framework of limited payments for small businesses as only money and personal transactions are held.
• Single Entry System in Accounting is an accounting method in which each and every accounting payment is documented with a single entry in the accounting records based on the operating results shown in the company's income statement.