Financial accounting follows any of three methods for maintaining books of accounts. Viz. cash method ii) Accrual method and iii) Hybrid method.
Cash Method : Under this method only those expenditures/incomes which are actually paid/ received during the accounting year are recorded irrespective of whether accrued or not. This method is widely used by the public utility undertakings.
Accrual Method (Mercantile Method) : Under this method, all those expenditures/incomes which are accrued, irrespective of actual receipt/payment, during the accounting year are recorded. This method is widely used by the business organizations.
Hybrid Method : It is a combination of both cash and accrual methods. Under this method, some transactions are recorded on cash basis and some other transactions are recorded on the accrual basis. This method is rarely used.
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