Cash vs Accrual Accounting

The Accrual Method vs The Cash Method

Accounting methods are the backbone of financial record-keeping for businesses, influencing how income and expenses are recognized. The two primary methods used are the accrual method and the cash method of accounting. Each has its principles, advantages, and drawbacks, impacting how financial health is reported and assessed.

The accrual method of accounting records revenues and expenses when they are earned or incurred, regardless of when the cash actually changes hands.

On the other hand, the cash method records revenues and expenses only when cash is actually received or paid out.

The accrual method is considered more reliable and transparent as it provides a more accurate representation of a company's financial position and performance. It is also in accordance with Generally Accepted Accounting Principles (GAAP), making it the preferred method.