Many years ago when I started operating my own small business, I learned the hard way what the difference was between the two methods of accounting. And I only learned the difference when I made the decision to hire an outside accountant to handle my accounting functions. In fact, I learned the difference because I had been using the accrual basis method and the accountant tried to switch me to the cash basis method. Without bothering to tell me!
You see, because my business at the time involved billing customers and then waiting for them to pay me, I had automatically adopted the accrual method. If I hadn’t, I would have had a hard time tracking my monthly sales and expense figures. This is because when you use accrual (or accrual) accounting, you invoice a customer and post the transaction immediately. Whether you have been paid or not. The same goes for your own invoices. When you receive the invoice, you post it and later, when you actually pay it, you return to it and mark it as paid. This allows for more consistent tracking of sales and expenses on a monthly basis.
The other way is called the cash basis method. You simply record the transaction when you are paid for your goods or services. This method is good for various businesses, such as restaurants and convenience stores. In fact, it’s fine for any small business that doesn’t have to bill their customers. Paying your bills also works the same way. You save the invoice
