Cash versus Accrual Accounting

What is the difference between cash- and accrual-based accounting methods?

The main difference between cash- and accrual-based acounting is the timing of when revenue and expenses are recognised.

Cash-based accounting method :

• Accounts for revenue only when the money is received and for expenses only when the money is paid out. i.e. when the actual money comes in and out of your business.
• If you get an invoice for something, you don't record the cost in your books until you've paid the invoice.
• When you send an invoice to a customer, you don't record the sale in your books until you receive the money from the customer.
• The cash method is usually used for personal finances and small business.
• This method shows how much money you have in your bank accounts, it doesn't not include the money that is owed to you or the money you owe to others.

Accrual-based accounting method:

• Accounts for revenue when it is earned and expenses when they are incurred. i.e. you record expenses and sales when they take place, instead of when cash changes hands.
• For example, if you send an invoice to a customer, you record that sale in your books even though haven't received payment yet. 
• The accrual accounting is the most common method used by businesses.
• This method tracks your true financial position, as it includes the money that is owed to you and the money you owe others.

Accrual accounting is more complicated than cash accounting, so you'll need an in-depth understanding of bookkeeping methods or a professional to help you.