What is the difference between cash and accrual accounting?
Cash vs. accrual
Cash accounting records revenue and expenses when cash is received or paid, while accrual accounting records revenue when it is earned and expenses when they are incurred. The choice between the two methods affects how a business reports financial performance and cash activity.
Example: If a company completes work in December and receives payment in January, cash accounting records the revenue in January, while accrual accounting records it in December.
Related terms: Cash Accounting, Accrual Accounting, Financial Statements
