Cash vs. Accrual: Which One Fits Your Business?

Cash accounting records money when it moves. Accrual records it when it is earned or owed. Both are legal for most small businesses — but they tell very different stories.

Cash basis: simple and honest

You record income when clients pay and expenses when you pay them. Your books always match your bank balance, which makes day-to-day decisions easy. The catch: a big unpaid invoice can make a great month look terrible.

Accrual basis: the full picture

You record invoices when you send them and bills when they arrive. Profit reflects the work you actually did, not the timing of payments. The catch: you can look profitable while your bank account is empty.

Which should you pick?

If you sell and get paid on the spot, cash basis is usually enough. If you invoice on terms, carry inventory, or want a loan, accrual gives lenders and owners the picture they trust. Either way, pick one method and stick with it — switching mid-year creates exactly the mess books are meant to prevent.