Accrual basis and cash basis accounting are two distinct methods of recognizing revenue and expenses in bookkeeping. The biggest difference between these two is how revenues and expenses are recognized.
Under the accrual basis accounting method, revenue is recorded when it’s earned, regardless of when cash is received or paid. For example, if a business provides services to its customers on credit, it will still record the sale right away because it has fulfilled its obligations even though it hasn’t been paid yet. Meanwhile, expense recognition occurs when they’re incurred, not necessarily when payment is made.
On the other hand, cash basis accounting only recognizes revenues and expenses when cash is received or paid. That is, until money is in-hand, the transaction isn’t officially recorded. With this method, businesses may have to wait longer to record sales, thus delaying their ability to report accurate financial information.