Definition
Cash accounting records income when you receive it and expenses when you pay them. Accrual records both when they're earned or incurred, regardless of when cash changes hands. Most small businesses can choose, but inventory-heavy operations and businesses above certain revenue thresholds are required to use accrual.
When It Matters
When choosing how to keep your books, when applying for a loan, or when financial statements need to tell investors or lenders the truth about the business.
Related Services
Common Questions
Which method is better?
Accrual gives a more accurate picture of business performance; cash is simpler and often better for tax. Many of our clients use accrual for management reporting and elect cash for tax where allowed.
R Related Terms
Reconciliation
Comparing your accounting records against an outside source — usually a bank or credit-card statement — to confirm they agree.
Accounts Receivable (AR)
Money owed to your business by customers for goods or services already delivered.
Balance Sheet
A snapshot at a single point in time of what a business owns (assets), owes (liabilities), and the owners' equity in it.