Cash basis bookkeeping is that which records entries at the time funds are received or paid in connection with a given transaction. Accrued bookkeeping, on the other hand, is that process under which entries are made in accordance with the accrual or incurrence of an obligation, irespective of when the cash may be paid therefor. These definitions apply equally to assets acquired and liabilities incurred as they do to expenses and earnings. No bookkeeping these days is strictly on the cash basis except that of the crudest variety; but it is desirable to illustrate the difference between the cash and the accrued basis in bookkeeping. Under the cash basis if the bank buys, on June 1, stationery enough to last it one year, it makes entries as follows:

Debit: Expense ...............................

$1,200

Credit: Cash..........

$1,200

That means that the month of June would stand the expense for the entire year which, of course, from a comparative standpoint, is incorrect. On the accrued basis the entries for that outlay would be as follows:

Debit: Prepaid Expenses...

$1,200

Credit: Cash ..........

$1,200

At the end of each month, to show the proper proportion of each month's charge, the following entries would be made:

Debit: Expense...........

$100

Credit: Prepaid Expenses..............

$100

This entry would, of course, be for one-twelfth of the entire outlay, provided that stationery has been purchased for the entire year. As was implied, most bookkeeping is of a mixed character, partly accrued and partly cash. Having dealt in a previous chapter with cash basis entries on interest and expenses, it remains to show here these entries on the accrued basis.