An accounting method consists of the rules and procedures that a company follows in reporting its income and expenses.
The two main accounting methods are cash accounting and accrual accounting.
Cash accounting reflects income and expenses as they are received and paid.
Accrual accounting records income and expenses as they occur. Generally Accepted Accounting Principles (GAAP) require accrual accounting.
The Internal Revenue Service (IRS) requires accrual accounting for businesses that earned an average of $25 million or more in the previous three years.
Once a company chooses an accounting method, it must adhere to that method in accordance with the rules set by the IRS and requires approval if it wants to change its accounting method.
Accountability is the acceptance of responsibility for one’s actions. This implies a willingness to be transparent, allowing others to observe and evaluate their work.
Accounting policies are the procedures a company uses to prepare financial statements. Unlike accounting principles, which are rules, accounting policies are the standard for following those rules.
Acquisition accounting is a set of formal guidelines describing how the acquirer should report the assets, liabilities, non-controlling interests and goodwill of the acquired company.
Performance Based Management (ABM) is a means of analyzing a company’s profitability by looking at every aspect of its business to determine its strengths and weaknesses.