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Mercantile system
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Definition and Explanation:
- It is a system in which accounting entries are made on the basis of amount having become due for payment or receipt.
- This system recognizes the fact that if a transaction or an event occurred, its consequences cannot be avoided and therefore, should be brought into book in order to present a meaningful picture of profit earned or loss suffered.
- The mercantile system is also known as the accrual system.
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Difference between cash and mercantile system of accounting |
- Under cash basis accounting, Revenues are recognized and earned only when cash is received irrespective of when and how the services were performed or goods delivered.
To put it in different terms, the cash basis of accounting takes into consideration all those incomes/gains that have been received and expenses/losses that have been paid during the accounting period in consideration.
Under accrual or mercantile basis accounting, Revenues are recognized and earned when they are realized or realizable irrespective of when the cash is received.
To put it in different terms, the accrual basis of accounting, records all incomes/gains and expenses/ losses pertaining to the accounting period under consideration, irrespective of receipt or payment.
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