What is the difference betwen accrual and cash bookkeeping?

“The main difference between accrual and cash bookkeeping is the timing of when revenue and expenses are recorded.

Cash accoutning recognizes these transactions when money changes hands. This means that invoices as income, or bills as expenses do not count toward your financials until they have been settled. This method does not recognize AR or AP. It is also the simplest form of accoutning that the majority of small businesses use to maintain their books.

Accrual accounting recognizes recognizes revenue when it’s earned and expenses when they are billed. It is recorded even if payment won’t be made / recevied for another month. Larger businesses typically use accrual accoutning to have a better representation of their financial activities over the long-term.

Modified Cash-Basis accounting combines both cash and accrual accounting. This is used for the simplicity of cash accoutning but allows more sophisticated accounting to be able to match revnue and expenses with bills and invoices. It is also used to record depreicaiton, deletion, or amortization for long-term assets on the balance sheet. Due to compliance reasons, modified cash-basis accounting is to be used for internal purposes (such as tracking Accounts Receivable, instead of recording a direct sale). When generating reports and financials, cash-basis reports will be delivered.”