Cash Basis accounting is a system of accounting in which transactions are only recorded when cash is exchanged. This means that income and expenses are not recognized until cash is received for the sale of goods or services, or paid out to pay for an expense.
Accrual accounting on the other hand, is the practice of recognizing income and expenses as they occur, regardless of when money changes hands. This means that income and expenses are recognized as soon as a transaction takes place, even if no cash has been exchanged yet. For example, a company may have sold goods to a customer but not collected payment yet – the sale would still be recorded under the Accrual accounting method.
These two accounting systems offer different advantages depending on the size and nature of your business; however, whichever way you choose it’s important to ensure you are staying compliant with all applicable regulations.