Cash accounting recognizes revenue and expenses only when money changes hands, making it simpler and more intuitive for small businesses. Accrual accounting, on the other hand, records income and expenses when they are incurred, offering a more accurate financial picture but requiring more complex bookkeeping.

Cash Vs. Accrual Accounting

Cash accounting is a method where revenues and expenses are recorded only when cash is actually received or paid, making it straightforward and easy to track cash flow. This approach is commonly used by small businesses and individuals due to its simplicity, but it may not provide an accurate financial picture of long-term profitability or obligations.

Cash Accounting

Revenue and expenses

Money changes hands

Small businesses are the backbone of the economy, driving innovation and creating the majority of new jobs. They operate on a smaller scale than large corporations, allowing for greater flexibility and a closer relationship with their customer base.

Small Businesses

Accrual accounting is an accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash transactions occur. This approach provides a more accurate financial picture of a company's performance over time compared to cash accounting, which only records transactions when cash changes hands.

Concepts

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