Sample answer:

There are two methods of accounting - Cash Based Accounting and Accrual Method of Accounting. The main difference between the two methods is in the approach towards revenues and expenses.

Cash Based Accounting: This is the most commonly used method adopted for maintaining personal accounts. It recognizes revenue, income as and when the payment is received and the expenses are recognized when payments are made.

Accrual Accounting: As per this method, revenue and expenses are assigned to the accounting period in which they are earned or incurred. The method is based on the principle – expenses for a period that are the costs of running a business or earn income should be compared to the revenues for that period.

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