Cash basis is the simplest method of accounting for business transactions. Under the cash basis of accounting, businesses record revenue and expenses only when money changes hands. This means that businesses do not report income until they receive payment from their customers, and expenses are recorded when payments are paid to suppliers.
Accrual basis accounting provides a more comprehensive picture of revenue and expenses since it records them when they occur rather than when money changes hands. Accrual accounting is more complex than the cash basis of accounting; therefore, it is an important aspect of running a business that owners should understand in order to make informed decisions. Under the accrual basis of accounting, businesses are required to record revenue or expenses as soon as goods are delivered or services are rendered, regardless of whether or not payments have been received or made. This ensures that all revenue and expenses incurred during a certain period are accurately reflected in the company’s accounts.