Cash versus accrual accounting
In the world of business there are many different options for virtually everything. From buying to accounting, there is so many variations of work that it can be hard to keep track. One of these many variations in the world of business is cash vs accrual accounting. Cash accounting is the average accounting done by the many businesses in the world today. It is the standard for most people. To accrue is to gain or receive. An example of this is a lemonade stand. If Timmy sells 4 cups of lemonade and makes 10 dollars, then immediately that 10 dollars is accrued. Even if he doesn’t get paid for a month after doing the job, he still notes down the 10 dollars to make sure there are no accounting mishaps later on. For example, if there is a question of when he made the money, he can immediately go back and look when the money was made, and how much it was, and who gave him the money. The cash system works differently. Instead of immediately writing down the expenses and the money made, cash is written down or accounted for when the expense is paid for. So if Timmy makes the money a week after selling his product, then that is when he writes it down, vs writing it down immediately. Both of the options are good in their own way. Accrual accounting is easier to keep track of expenses, but cash is easier and the expenses are in real time.
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