Accounting

Accounting can be very intimidating to most people it can seem like a foreign language with its use of statistics and algebra type equations. In fact accounting merely displays the results of a business, personal, corporate, or financial planning activities. People all over the world use accounting in one way or the other and though they use it differently the bottom line is the same, understanding how to do it makes a world of difference. From analyzing business transactions to managing a family budget, getting familiar with the different types of accounting practices can put a person dealing with accounting at ease. There are three types of accounting we will discuss in this paper; accrual accounting, cash flow, and fund accounting, hopefully at the end of these explanations there will be some light shed on these practices.

Accrual accounting consists of methods that look at performance and position of a company regardless of when cash transactions occur. This type of accounting is widely standard for most companies, it measures the company’s current condition, and unlike cash flow it does not recognize transaction with an exchange of cash. Entries in accrual accounting are made one continuous basis; first there is a certain amount of cash recorded at the beginning, second this cash is used to buy supplies and expenses, third revenue earned comes from cash transactions or accounts receivable, and finally on accounts receivable cash is collected. Accrual accounting handles depreciation by reducing the carrying value of an asset, if an asset is fully depreciated it takes on its residual value. Inventory is also very important in accrual accounting, staying on top of inventory and when it is sold, keeping track of the cost, and the amount generated is very important for accrual accounting. Accrual accounting revenue generates by a company selling merchandise then recorded in equity when the client receives merchandise, even though it is not immediately...