Cash and accrual accounting are two popular methods of financial accounting. With cash-basis accounting, income and expenses are recorded when the cash is received or paid out. This type of accounting doesn’t necessarily reflect the true economic performance of a business as it does not account for bills that have not yet been paid or money that has not yet been earned.

Accrual basis accounting records income and expenses when they are incurred even if no money changes hands at the time. With accrual accounting, transactions are recorded when they occur – regardless of when the cash is received or paid out. This allows businesses to get a better understanding of their long-term viability, rather than relying solely on short-term cash flow. Put simply, cash and accrual accounting methods provide different perspectives of a business’ financial position and performance.