Cash vs accrual accounting is a fundamental accounting choice for small businesses, and it can have a big impact on how you manage your finances. With cash-basis accounting, revenues and expenses are recognized when cash is received or paid out. In other words, you can only recognize income or expense when the money has actually been exchanged. On the other hand, with accrual basis accounting, revenues and expenses are recorded when they are incurred rather than when they are actually paid. This means that an invoice issued to a customer today would be recorded as revenue on that day, instead of when the payment comes in. The same goes for expenses: if you order materials today and receive them next week, the expense would be tracked as soon as the materials were ordered.