Cash and accrual are two ways of deciding when to record income and expenses — and the choice changes what your profit looks like at any moment. Understanding the difference helps you read your numbers correctly and pick the right method for your business.
What is cash accounting?
Cash accounting records income when money actually comes in and expenses when money actually goes out. It follows the bank balance, so it is simple and shows real cash movement — but it can misstate profit when there is a gap between doing business and getting paid.
What is accrual accounting?
Accrual accounting records income when it is earned and expenses when they are incurred, regardless of when cash changes hands. Sell on credit today and it counts as income today, even if payment arrives next month. It gives a truer picture of performance, especially with stock and credit.
Cash vs accrual at a glance
| Cash | Accrual | |
|---|---|---|
| Records income when | Money received | Sale is earned |
| Records expenses when | Money paid | Cost is incurred |
| Complexity | Simple | More involved |
| Best for | Small, cash-based | Stock, credit, growth |
An example
You deliver goods in March and get paid in April. Under cash accounting the income is April's; under accrual it is March's, when you earned it. Same sale, different month — which is why the two methods can show very different monthly profit.
Which should you use?
Very small, cash-based businesses often use cash accounting for its simplicity. But if you carry stock, sell or buy on credit, or want to understand true performance, accrual is more accurate — it matches costs to the sales they helped create, which is essential for reading a profit and loss statement correctly. Rules can also vary by country and size, so check local requirements.
Get both views
RushFlow's accounting records sales, purchases and payments as they happen, so you get an accurate accrual view of profit while still tracking real cash flow — the full picture, not just one side.