Cash and Accrual Accounting Methods
Cash Method
In this method of accounting, you record your
expenses and income when cash is exchanged. You record income when you
receive payment and you record expenses when you actually pay them. This
method is used most by small business owners.
Accrual Method
In the accrual method, you record income when
you have made the sale or performed the work. You record expenses when you
have received a good or service. This method is used more by large
business' and those wanting more accurate financial records.
Which Accounting Method Is Better
Both of these accounting methods have pluses
and minuses. The cash method of accounting is simpler than accrual
accounting. This is because you only record transactions once as cash is
exchanged. This also makes it less accurate.
With accrual accounting, you will be recording more transactions since you
have to make an entry when you for example receive goods and when you pay
for those goods. This makes it more accurate than cash basis accounting.
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