Accrual Accounting vs Cash Accounting

Accrual accounting records income and expenses when they are earned or incurred, regardless of when cash is received or paid. This provides a more accurate picture of financial health over time. Cash accounting, on the other hand, records transactions only when cash changes hands—income when received and expenses when paid. While accrual offers better insight into ongoing operations, cash accounting is simpler and often used by small businesses. Choosing between them depends on business size, complexity, and reporting needs.