Accounting Practices 1

Accounting Practices and Entries

Axia College of University of Phoenix

Angela Sherrell

HCA/270

July 4, 2010

Accounting Practices 2

Business owners view companies as similar to human beings. As people visit their doctors regularly to help maintain their physical health, business owners have to monitor their business’s health on a regular basis. Accounting, which is defined as “the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgments,” is one monitoring method (University of Phoenix, 2010). There are three types of accounting that can be used: accrual, cash flow, and fund accounting. This paper will cover how entries are made in each system, the accounting of inventory in each, how depreciation is handled by each, where each is strongest and weakest, and the organizations that utilize each type. Economic activities are related to financial events that are considered in accrual accounting. That is, revenues and expenses are recognized. Whether revenues are received in cash or not, they are realized. Expenses that the business incurs are matched up to associated revenues whether they are paid in cash or not. In accrual accounting, a company’s cash inflow and outflow are not indicated in standard balance sheets and income statements. Instead, a separate statement of cash flow is given (Accounting Methods, 2009). In the cash accounting method, revenues are recognized when cash is paid out. Expenses and revenues are also called cash payments and cash receipts in this method of accounting. Accrued or prepaid expenses are not accounted for, and neither are accounts receivable and payable (Accounting Methods, 2009). Public domain organizations and non-profits are known best to be served by fund accounting. These