ABSTRACT
Understanding financial information is the key to effective budgetary control. There are three different methods of compiling accounts each of which can give very different figures. These are: cash, accruals, and commitments. The cash basis of accounting only takes into account the amounts actually received and paid. Any payments outstanding or receipts due where the money has not yet been received or paid out are not included. The accruals basis of accounting records costs when they are incurred, not when the payment is made. The accruals basis records income when it is earned, not when the money is received. It therefore includes money owed and owing and records the amounts before the cash exchanges hands. The commitments basis goes one step further than the accruals basis and reflects future expenditure. It records the transaction before income has been earned and before expenditure has been incurred.
