Cash Accounting vs Accrual Accounting

Because cash accounting doesn’t account for upcoming expenses and earnings, businesses often choose to use accrual accounting. Accounting on an accrual base means that revenues and expenses are recorded when they’re earned or incurred, instead of when they’re received or paid. Accrued income and expense figures are subtracted from each other to show profit or loss.

Accrual accounting enables investors to get a clearer picture of your company’s past performance and future prospects. Because income and expenses match up, investors can easily evaluate your business’s profitability. Accrual accounting provides a more accurate picture of your business’s performance. Income and expenses are matched together so that investors can see how profitable or unprofitable your business is. Accrual accounting shows investors exactly what your business earns and spends, allowing them to make informed decisions about whether to invest in your company.

Accrual accounting lets investors know exactly how much money your business made and spent last year. Accrual accounting helps investors understand your business’s profitability. You’ll be able to accurately predict your profits and losses. Accrual accounting allows you to forecast your finances and plan accordingly.