There are two types of accounting systems. The two major accounting systems are accrued and cash accounting. The most commonly used accounting system is accrued accounting. Accrued accounting is used by most public and private corporations. The cash accounting system has its merits and circumstances in which the system is more suitable for application. A cash basis accounting system recognizes income when cash is collected and expenses when cash is disbursed. The cash accounting system is preferable for simple operations that require maintaining a minimum level of cash. An example of a business model in which the use of cash accounting is appropriate is a hot dog vendor. The hot dog vendor depends on the weekly sales in cash to purchase materials to continue operating the next week. People that work in flea markets also should use cash base accounting since their operation deal strictly with cash.
The second system used in accounting is accrued based accounting. Accrued based accounting recognizes revenues and expenses when they are incurred irrelevant of whether or not cash was transferred in the transaction.