Accounting methods:

These are three methods of accounting, which are as follows:

1) Cash basis of accounting: Small business, individual professionals and non-trading concerns usually adopts cash basis of accounting. Under this method of accounting incomes are considered to have been earned only when received in cash and expenses are considered to have been incurred when actually paid. Hence under this method the profit or loss of an accounting period is the difference between incomes received and the expenses paid. Though the cash basis of accounting is simple. No adjustments are required.

2) Accrual basis of accounting: Under accrual basis of accounting all incomes are credited to the period in which earned, whether received or not. Similarly, all expenses are debited to the period in which incurred, whether paid or not. It is a scientific basis of accounting.

3) Hybrid basis of accounting: This is the composition of both the methods of accounting i.e., cash basis and accrual basis. In Nepalese banking sector, expenses are recognized under accrual basis whereas revenues are recognized under cash basis.