It's important to understand the basics of the two principal methods of keeping track of a business's income and expenses: cash method and accrual method (sometimes called cash basis and accrual basis). These methods differ only in the timing of when transactions, including sales and purchases, are credited or debited to your accounts.
Under the accrual method, transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you see the money, or actually pay money out of your checking account, to record a transaction.
Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.
For a huge yet developing economy like our's cash system can offer more flexibility in expenditure planning because you can sometimes time your receipt of revenue or payments of expenses to shift these items from one tax year to another. Moreover the implementation of various growth and developement schemes take longer than anticipated. For big companies where there is certainity of all transactions being completed in timebound manner the accrual method can prove to be more efficient to keep track of a business's income and expenses.
