Cash and accrual accounting are two different ways of accounting, in this essay I will talk about them. The cash method is a more immediate recognition of revenue and expenses. The accrual method focuses on anticipated revenue and expenses.
The cash method is really simple, it’s when you have a notebook or something that you can keep track of things in and write in it how much money you got, when you got that money, how much money you spent, and when you spent that money. According to Accounting made simple by Mike Piper “The problem with the cash method, however, is that it doesn’t always reflect the economic reality of a situation”. This method is mostly used by small businesses.
The accrual method is based more on the fact that you will be paid in the future. According to Investopedia “Under this method, revenue is accounted for when it is earned. Unlike the cash method, the accrual method records revenue when a product or service is delivered to a customer with the expectation that money will be paid in the future”. This means that you keep track of the money that people owe you expecting to be paid in the future. If you are planning on starting a business, or will be, the cash method is definitely easier.