Cash basis
Under cash-basis reporting, income and expenses are generally recognized when money is received or paid. This can be helpful for understanding cash activity, subject to applicable accounting and tax rules.
Accrual basis
Under accrual-basis reporting, revenue is generally recognized when earned and expenses when incurred, even if payment happens later. Accounts receivable and accounts payable therefore become especially important.
A simple example
Suppose you invoice a customer in March and receive payment in April. Accrual reporting generally recognizes the revenue in March; cash reporting generally recognizes it in April.
Why the distinction matters
The same business may show different monthly results under each basis. Before comparing reports, confirm which accounting method is selected and whether it matches the purpose of the review.
Which one should you use?
The appropriate method depends on your business, reporting needs, and tax requirements. Discuss tax-method decisions with your CPA or tax adviser; your bookkeeper can help keep records consistent with the chosen approach.
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This article is general educational information, not individualized accounting, financial, or tax advice.