There are basically two systems of Accounting:
  • Cash System of Accounting:- Cash System of Accounting only records the cash receipts and the payments. This system actually assumes that there are no credit transactions. In this system of accounting, expenditures are considered only when they are actually paid, and incomes are considered only when they are genuinely received.
  • Mercantile or an Accrual System of Accounting:- In Accrual System of Accounting, expenditures and revenues are treated during that period to which they actually relate. This system of accounting is regarded to be ideal, but it can result in unrealized profits.

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