The difference between cash and accrual accounting
Cash vs accrual accounting (comparison)
Accrual accounting recognises income and expenses as soon as a sale or purchase is agreed, while cash accounting waits until money has changed hands.
This difference is most relevant when things are bought or sold via invoice. A business doing cash accounting won’t show these invoice-based transactions on the books until payment is made. A business doing accrual accounting will show that money is due to come or go.
- Business accounts are updated only when money changes hands
- Gives a shorter term view of finances
- A simpler method of accounting (preferred by some smaller businesses)
- Business accounts are updated to reflect pending income and expenses
- Gives a longer term view of finances
- May be required by some financiers or tax offices