Accrual and Cash Based Bookkeeping

The receipts can be entered according to either the accrual method or the cash method. Bookkeeping is principally done on accrual basis, which means that a business transaction is recorded based on transfer (income) and receipt (expense) of the goods or services. Recording is, therefore, not determined by the cash flows or the invoice dates. Financial statements must always be prepared on accrual basis.

In cash based bookkeeping, the expenses and income are recorded in the accounts based on the date of payment. However, even in this case it must at all times be possible to track down the balance of accounts payable and accounts receivable, i.e., the value of goods and services provided and received for which payment has not yet been made or received. For preparation of the financial statements, all transactions recorded on cash basis must be adjusted and complemented on accrual basis. Only self-employed persons are allowed to maintain single-entry bookkeeping and prepare financial statement on cash basis.