2 Methods of Accounting

CASH BASIS ACCRUAL BASIS

Cash sales plus collection of trade Cash sales plus sales on account
receivables
SALES

Cash purchases plus Cash purchases plus

PURCHASES
payments to trade purchase on account
creditors

Items received are considered as income Items earned are considered as income
INCOME OTHER
regardless of when earned. THAN SALES
regardless of when received

Items paid are treated as Items incurred are

expense regardless when treated as expense
EXPENSES
incurred regardless when paid

No bad debts are recorded

Doubtful accounts are
because trade receivables
treated as bad debts
are not recognized BAD DEBTS