Do you understand the difference?
Let me explain it to you in a short post:
Cash
- Cash movement is recorded when a payment from a client is received (cash in) or when a payment of a supplier is made (cash out).
Accrual
- Revenue recorded when work is done/product changed hands legally.
- Expenses recorded when the service incurred or when a good is received.
Based on these 2 principles, you can define the 2 different accounting methods to use:
1. Cash
Cash based accounting recognizes revenues when cash is received, and expenses when they are paid.
This method does not recognize accounts receivable or accounts payable.
The Cash basis method is more often used by small business due to the simplicity of the method.
2. Accrual
Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid.
This method is used by middle and big companies to reflect the economic reality of debit and credit positions as well as the income and expenses in a specific period of time.
Original Source: Linkedin