Financial accounting can be done on an accrual basis or cash basis. Accrual basis is highly accepted. An organization may also use a combination of both. Cash basis of accounting requires transactions to be recorded only when the transaction results in a flow of cash.

accrual basis of accounting

In order to meet their objectives, financial statements are prepared on the accrual basis of accounting.

Financial statements are compiled in a specific order because information from one statement carries over to the next statement. The trial balance is the first step in the process, followed by the adjusted trial balance, the income statement, the balance sheet and the statement of owner's equity.