What is the difference between cash basis vs accrual basis accounting?

[niyati]

I’m confused about choosing between cash basis and accrual basis accounting. Some say cash basis is simpler for startups, but others recommend accrual for accurate reporting. Can anyone share which one works better for small businesses and why?

 

[riya]

The key difference is timing of recording income and expenses. In cash basis accounting, transactions are recorded when cash is received or paid. In accrual basis accounting, they’re recorded when earned or incurred, regardless of cash flow. Accrual gives a more accurate financial picture, while cash is simpler.

 

[Gsusangrey]

Cash Basis: Records revenue/expenses only when cash is received/paid (simple, used by small businesses). Example: A sale is logged only when payment arrives.

Accrual Basis: Records transactions when earned/incurred (matching principle, GAAP-compliant). Example: Revenue is recognized upon delivery, even if unpaid.

 

[danisjohn]

Cash basis accounting records income and expenses only when cash is received or paid. Accrual basis accounting records revenues and expenses when they are earned or incurred, regardless of cash flow. Accrual provides a more accurate financial picture, while cash basis is simpler and used by smaller businesses.

 

[brook]

Timing when income and expenses are recorded is the difference. Under cash basis accounting, it records the transactions as cash is received or paid. Under accrual basis accounting, they are recorded upon being earned, or incurred, and regardless of cash flow. Accrual provides a more realistic financial snapshot of what really happened, whereas cash is much easier.