Businesses will use one of two accounting methods in their system.

The cash method is the most simple in that the books are kept based on the actual flow of cash in and out.

The accrual method is a little more complex, due to the fact that income and expenses are recorded as they occur, not necessarily when the cash changes hands. The accrual method incorporates accounts receivable and accounts payable, which are discussed elsewhere. The large majority of small organizations use the cash method.

Accounting has a simple definition of a system which tracks money coming in vs. money going out. The system will help you to operate your venture proactively concerning important financial decisions. Every accounting system has several key components.

Even if you choose to farm out all your bookkeeping to an outside accountant, you will need to understand the basic elements of an accounting system. While some may vary depending on the type of business, these components typically consist of the chart of accounts, the general ledger and internal controls.