Cash vs. Accrual Accounting
By Karin Lichtenstein, Owner, Capital Bookkeeping, Inc.
The two principal methods of accounting differ only in the timing of when business income and expenses are recognized on the books. The accrual method is more commonly used and records transactions when the order or sale is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or when a bill is paid. In other words, income is counted when the sale occurs, and expenses are incurred when you receive or use the goods or services. You don’t have to wait until you get the money, or actually pay out money to record a transaction. Under the cash method, however, income is not counted until cash (or check) is actually received, and expenses are not counted until they are actually paid (check, cash, credit or debit card).
This article was submitted by Karin Lichtenstein, Owner, Capital Bookkeeping, Inc. For more information, visit www.CapitalBookkeeping.com.