Cash Basis vs. Accrual Accounting - Which Works Best for Small Businesses
Recording cash flow in a small business is of utmost importance, as businesses need a clear indicator regarding how much money is spent and how much is actually being generated by the sales of the products. Cash basis vs. accrual accounting methods are two rivaling contenders for small businesses to keep track of their spendings as well as their earnings. We'll go through how these accounting methods help in recording cash flow, along with their advantages and disadvantages. Cash Basis Accounting Method The cash basis accounting method is a very simple way to keep a record of your business' earnings as well as spendings. In cash basis accounting, your bookkeeper will only record the transfer of funds as soon as you receive the cash in hand. For instance, if your business sells a sectional couch for $2,500, under the cash method, your bookkeeper will not log the sale of the sectional before your business gets paid the actual amount in cash. Even if the buyer pays after a f