Accounting
Accrual vs. Cash Accounting
Two ways to recognize income and expenses — when money moves (cash) vs. when it's earned or owed (accrual).
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.