The Cash method is like a checkbook. You record the income when you receive it, and record the expense when you write the check. It is easy to maintain, and good way to start for new businesses figuring out where they are going. It does not include the Accounts Receivable or Accounts Payable so may misrepresent your true income and expenses. As your business becomes more complex, you may decide you need the detail of Accrual accounting.
The Accrual method records the income when the sale is made, whether you have been paid or not, and records the expense when incurred, even though it has not been paid. It is a more intricate system to learn, however, more accurately tracks your finances. Preferred by Accountants and CPA’s for management purposes.
If you have questions about which is best for you, Contact MJB’s Bookkeeping Solutions now.