A short monthly checklist for small business owners: what to send your bookkeeper, what to answer, and what you can stop worrying about.
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Cash vs accrual accounting, in plain English
In short
Cash accounting records income when the money arrives and expenses when you pay them. Accrual records income when you earn it and expenses when you incur them, whether cash has moved or not. Most small businesses use cash. Accrual starts to matter with annual prepayments, long projects, inventory, or investors and lenders reading your numbers.
Cash accounting
Money in, money out, recorded when it actually moves. It's simple and matches your bank account, which is why most small businesses use it.
Accrual accounting
Revenue is recorded when you've earned it and costs when you've incurred them. An invoice you sent in December counts as December revenue even if the client pays in January.
When accrual starts to make sense
- You sell annual plans or packages paid up front.
- You run long projects with deposits and progress billing.
- You carry inventory.
- A lender, investor or bonding company wants accrual statements.
Which method you use for taxes is your accountant's call. We keep the books on whichever basis they choose, and can switch when the business outgrows cash.
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