Accrual Basis Accounting is an accounting method that records income and expenses when earned or incurred, rather than when received or paid. This means transactions are recorded at the time goods or services are exchanged, regardless of when cash is actually exchanged. In other words, it tracks transactions in the period in which they occur, rather than when payment is made.
Cash Basis Accounting, on the other hand, only records transactions when cash is actually exchanged. This means revenue is not recorded until the customer pays, and expenses are not recorded until money is paid out. Essentially, this accounting method only tracks what comes into and goes out of the business. Both ways of accounting provide valuable insights but one might be better for your business depending on the type of industry and accounting needs.