Process and bases of accounting

1. Name the steps followed in accounting

process.
Ans:- Accounting process starts with
identification of business transaction and
followed by recording, classification,
summarising of business transactions.
(i) Identification of transactions.
(ii) Preparation of voucher.
(iii) Record in books of original entry-
Journal.
(iv) Posting to ledger .
(v) preparation of trial balance and
financial statement.

2. Explain basis of accounting.

Ans:- There are two bases of calculating profit
and loss.
(i) Cash basis accounting: Under this basis
transactions are not recorded unless
they are received in cash . This method
is useful for professionals like lawyers,
doctors, chartered accountants etc.
Advantage-
• This method is simple and realistic.
• It does not required personal
judgements.
• It is suitable for those enterprises
where most of the transactions are
on cash.

(ii) Accrual basis of accounting: Under this

basis transactions are recorded either
cash is received or not. All companies
and business maintain their account
according to accrual basis of
accounting.
Advantage –
• It is close true profit and loss.
 • It follow matching principle of
accounting.
• It is recognised by company act
2013.
(iii) Hybrid basis accounting: This method
is mixture of cash basis and accrual
basis, under hybrid basis of accounting
income and assets are recorded on
cash basis, where as expenses and
liabilities are recorded on accrual basis.
Usually professionals such as doctor
lawyer etc adopt this method.