When starting a business, deciding on which bookkeeping method is best suited to your business may be confusing. Two methods that you can use are cash vs. accrual accounting.
What is Cash Accounting?
Cash accounting tracks the actual money that is coming in and out of your business. If you receive an invoice, you do not record the cost until you have actually paid the invoice. This also applies when you send an invoice to a customer, you do not record the sale until you have received your payment. An example of this would be if you sent an invoice on Wednesday, but didn’t receive the payment until the following Monday, you then record the income against Monday’s date.
Pros and Cons of Cash Accounting
What is Accrual Accounting?
Accrual accounting is when you do record your expenses and sales on the day they take place. An example would be a if you are an electrician and you have sent an invoice for a project you’ve completed and you record the sale in your book straight away. Even though you haven’t received a payment yet, this method shows you the amounts you owe to people and the amounts owing to you.
Pros and Cons of Accrual Accounting
Choosing a Method
When it comes to choosing a method you need to think about the following:
Before deciding on an accounting method you should consider talking to an accounting or business professional.
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