Cash-based accounting and accrual accounting are the two primary accounting methods.
Here are the key differences between them-
Cash-Based Accounting: You record transactions when cash changes hand.
Accrual Accounting: You record a transaction on its completion (For example, when you issue an invoice even you do not receive the payment yet) even if cash doesn't change hands.
Every business has three key financial parts, and these are- assets, equity, and liabilities. These financial parts must be kept in balance.
Assets include everything your company owns. Your cash in banks, stock, office accessories, vehicles, property, etc., are your business assets.
Based on the portion of ownership, the claims that you have on assets as an owner.
Everything your business owes to others is a liability. It could be a bill from a vendor, bank loans, balances of your credit card.
Assets = Owners Equity + Liabilities
In other words,
Owners Equity = Assets - Liabilities
To store bookkeeping entries or business transactions, you use an account; this is called a ledger.
You usually find the following ledger in accounting-
Sales Ledger/Customer Ledger/Debtors Ledger: It holds all the individual customer accounts with their balances.
Purchase Ledger/Supplier Ledger/Creditor Ledger: It holds all the individual supplier accounts with their balances.
General Ledger: It holds all financial transactions that affect your business. For example, when you receive revenue by providing a service. And an expense like rent, payroll, utilities, etc.