Cash Basis vs. Accrual Accounting: Which Is Right for Your Business?
Cash and accrual accounting answer the same question — how is my business doing? — using different timing rules, and the choice affects how you should read every report you get.
Cash basis: simple and immediate
Cash basis records income and expenses when money actually moves. It's simple to understand and shows real cash in the bank, which makes it popular with small service businesses without inventory.
Accrual: matches revenue to when it's earned
Accrual records revenue when it's earned and expenses when they're incurred, regardless of when cash changes hands. It gives a more accurate picture of profitability over time and is required for larger businesses and most that carry inventory.
Most businesses under a few million in revenue can reasonably choose either — but the method should be picked deliberately, not left to whatever the software defaulted to when the account was created.
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