Cash-basis accounting is an accounting method used by small businesses and independent contractors. It records revenue only when it has been received and expenses only when they have been paid. This means that transactions are recorded at the time of payment, giving the business owner a clear idea of their financial position in real-time.

Accrual accounting, on the other hand, takes into account all transactions, whether or not money has changed hands yet. It is based on the assumption that revenues earned and expenses incurred will eventually be paid. Accrual accounting allows for more accurate forecasting and planning, as it captures events that would otherwise go unseen in cash-basis accounting.