FinTech Glossary

Overview

An accounting method is the rule a business uses to record income, expenses, and financial activities. It determines when transactions are recognized in the books and how financial performance is reported.

Business Context

The accounting method a company chooses affects revenue reporting, tax liability, cash flow visibility, and compliance with Indian standards such as Ind AS and the Income Tax Act.

For finance teams, choosing the right method ensures consistent books, fewer audit issues, and more reliable decision-making.

Types of Accounting Methods

i. Cash Accounting

Records income and expenses only when cash is received or paid. It is best for smaller businesses that want a straightforward view of cash movement.

ii. Accrual Accounting

Records income when earned and expenses when incurred, even if cash moves later. It is used by companies that need accurate reporting, forecasting, and audit readiness.

iii. Hybrid Method

A mix of cash and accrual treatment. It is used in limited cases since Indian tax rules generally prefer consistent use of either cash or accrual.