Accounting system

Kollipara sundaraiah asked 1 month ago

What is meaning and difference between cash system and mercantile system.a doctors,nursing homes,hospitals  accounting system maintained cash or mercantile system  selected.

1 Answers
Rabindra answered 1 month ago

Books of accounts may be prepared using any of the following method;-

  1. Cash system of accounting 
  2. Mercantile System of Accounting or Accrual Accounting.

Cash system of accounting
Under cash system of accounting all expenses are recognized (recorded/ entered in books of accounts) when they are actually paid irrespective of the period to which they belong and all incomes are recognized (recorded/ entered in books of accounts) when actually received irrespective of the period to which they belong. Cash system of accounting are not recognized under companies Act, Hence companies are required to maintain books of accounts on the basis of Mercantile system. Cash system of accounting is generally used in sole trader, professionals etc.
Mercantile System of Accounting (Accrual System of Accounting) 
Under mercantile system of accounting all expenses are recognized (recorded/ entered in books of accounts) in the period to which they belong irrespective of the fact when they are actually paid and all incomes are recognized (recorded/ entered in books of accounts) in the period to which they belong irrespective the fact when they are actually received. Cash system of accounting are not recognized under companies Act, Hence companies are required to maintain books of accounts on the basis of Mercantile system
For example:- 
Rent of Rs. for the month of March-2020 is paid in the month of Sept-2020. Then under cash system of accounting this expense is recorded in the month of Sept -2020 even if it belongs to march-2020. But under mercantile system this expense is recorded in FY 2019-20 i.e. March-20 itself. and Unpaid sum is shown in balance sheet under current liabilities as Outstanding rent till the actual payment of this expense. 
Now coming the question that which of the above method (Cash system or mercantile system )should be used by a hospital or nursing home or professional doctor.?
Ans:- If hospital is registered as a company then it is required to maintain books of accounts using mercantile system of accounting. But in case of small nursing home or doctor personal clinic who are not registered under companies Act. then they are free to use any of the above two accounting system. But generally doctors practicing in self clinic opt to Cash system of accounting because cash system of accounting is simple, easy to understand and require less effort. On the other side, mercantile system required clarity of accounting concepts, revenue recognition and it require more effort to maintain accounts using mercantile system of accounting. 
 
 

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