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.

Cash accounting

  • 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)

 

Accrual accounting

  • 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

 

See other terms

Basis of accounting

   

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