Cash accounting is a method of bookkeeping that records financial transactions as they occur. This system recognizes when money changes hands and records it within the accounts accordingly. It is ideal for a smaller business with limited resources that doesn’t need to track complex operations or transactional flows.
Accrual accounting, on the other hand, is the process of recording financial transactions based on when they take place rather than when payment occurs. This method allows businesses to accurately track expenditure and revenue regardless of when they were incurred or received. Accrual accounting is more suited to larger, more complex businesses that need to regularly monitor cash flow in order to meet legal and taxation requirements.