Cash accounting is a straightforward approach to bookkeeping that reflects when money is actually exchanged—for example, when a customer pays an invoice. With cash accounting, you record income and expenses only when the money is exchanged. In comparison, accrual accounting better represents the actual performance of your business over time. It records income and expenses whenever they’re incurred (even if you don’t receive or pay the money right away). This includes sales made on credit, costs associated with inventory, and bills that need to be paid in the future. Accrual accounting offers a more accurate picture of your company’s financial situation, allowing you to make more informed decisions about how to grow and run your business.