Cash accounting is a method of recording income and expenses when the exchange occurs. This means that income is recorded when payment is received, and expenses are recorded when they are paid. In contrast, accrual accounting records income and expenses when they are earned or incurred – not necessarily when payments are received or made. For example, if you sell a product on credit, the associated sale will be recorded once it’s been shipped, regardless of when payment later arrives. Similarly, an expense may be recorded before its associated invoice is due. This method offers a more accurate picture of a business’s performance as it captures income and expenditure in the same accounting period.