The short answer: cash accounting records income and expenses when money actually changes hands; accrual accounting records them when they’re earned or incurred, regardless of payment timing. Cash is simpler and shows your bank reality; accrual is more accurate about true performance, especially when you sell or buy on credit.
Cash accounting
You record a sale when the customer pays, and an expense when you pay it. It’s simple and mirrors your bank balance. The downside: it can mislead if you sell or buy a lot on credit, because it ignores money owed and owing.
Accrual accounting
You record a sale when you make it (even if the customer pays later), and an expense when you incur it (even if you pay later). It gives a truer picture of performance for a period and is required for proper receivables and payables tracking.
A quick comparison
| Cash | Accrual | |
|---|---|---|
| Records when | Money moves | Earned / incurred |
| Simplicity | Simpler | More involved |
| Credit sales/purchases | Ignored until paid | Captured immediately |
| Best for | Very small, cash-based | Growing, credit-using |
Which should you use?
A tiny, cash-only shop may find cash accounting perfectly adequate. But the moment you offer customer credit, buy stock on supplier terms, or want a true view of profit, accrual is more honest. Many businesses run day-to-day on cash awareness while keeping accrual books underneath — and rules vary by country, so check locally.
Get both views
RushFlow keeps proper accrual books (tracking receivables and payables) while still showing your real cash position — so you get accuracy and your bank reality. See the live demo. (General information, not tax advice.)