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 What the heck is Cash vs. Accrual

Many business owners are confused by accounting methods: cash basis vs. accrual basis. The choice is often dictated by your industry and the IRS publishes guidelines on this. Here is a quick look at the differences in how and when an entity records income and expenses using the different methods.

Cash Basis:  Many small businesses record income at the time they receive money and the book expenses when they pay the bill. This method is known as bookkeeping on the cash basis. If you have been recording deposits from your customers' payments and have not been including the amounts they owe you as part of you income, you are using the cash method. Similarly if you have been recording expenses at the time you pay them rather than at the time you receive the bill from your vendor, you are using the cash basis.

Accrual Basis:  When using the accrual basis for your business bookkeeping you record income at the time of the sale (generate an invoice) rather than at the time you receive payment. Likewise you would record the expenses when you receive a bill not when you pay your vendor if you are using the accrual method. 

Some businesses use a modified accrual basis or a cash basis for internal financial reports but have their taxes prepared on an accrual basis. Again it is often determined by your industry, service businesses use the straight cash basis method. 

If you have questions about bookkeeping or QuickBooks, please contact me at Cherilyn@YourOCBookkeeper