A business can maintain either cash or accrual basis of accounting system. The difference between cash and accrual system is necessary to understand so that you can choose the right accounting system for your business. In the cash system, the entries are made in books only when either the money is received or spent. Whereas, in the accrual system, revenues are recorded even if cash has not been received or if expenses have been incurred but no cash payment has been made. Adjusting entries are used in accrual system of bookkeeping. These entries are used to convert a company’s accounting records to the accrual basis of accounting. Here are few points that will help you answer the question, what are adjusting entries?
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