Finance
Accrual accounting
Accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of when cash moves. It gives a more accurate picture of profitability for businesses that invoice on terms or hold inventory, and is expected by investors and acquirers.
In plain terms: Recording income and costs when they happen, not when the money moves.
Why it matters
Required in substance once you invoice on terms: cash accounting will show a great month whenever clients happen to pay, and a terrible one whenever they do not, telling you nothing about the business.
Read the full guideBookkeeping