Cash & Accrual Based Accounting

Let’s face it _ accounting should be left for accountants. It often feels like their jargon needs translating. Other than accountants, who else uses accrual? Should your business use cash or accrual-based accounting?

These are fair questions. Yet, cash is king; as a small business owner, you ought to manage your revenue. Below, we shed light on the details for you. 

Cash basis Accounting

Cash-based accounting records transactions on the actual day cash is received or when expenses are paid. Some business uses this type of accounting because it is simple to maintain. It is easy to determine the sums of money in the bank and out. You can know exactly how much revenue is at your disposal at any given time. 

Also, taxation occurs only when the revenue is in the bank since transactions are only recorded upon payment.

Accrual basis Accounting

Accrual based accounting is where businesses record revenue and expenses when they occur, regardless of whether the money is received or paid. For instance, bookkeepers document a completed project even when it is not yet paid. It is more preferred than the cash method.

Ideally, the accrual basis gives a pragmatic idea of income and expenses in a financial period. Therefore, it provides long term projections of the business as compared to the cash-based method. However, without close monitoring, the accrual method can be devastating as it does not provide a keen awareness on the business cash flow.

In conclusion, recording transactions, also known as bookkeeping, is an essential part of every business. It can be challenging to DIY, but if you would rather have a professional do good bookkeeping for you, then you are on the right website and all you have to do is contact us. 

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