Cash vs Accrual- Understanding and Comparing Accounting Types

accountant Toongabbie

If you want success for your business, you will need to do a lot of accounting work. For instance, you might be running short on staff for vacant HR positions while your partner is handling payroll tasks. Most accounting professionals work with the cash part and ignore the less popular accrual part. Let’s discuss what the latter is all about.

What is Cash Accounting?

Do you think this is something related to physical money only? You might be wrong here. Cash accounting is more about the movement of money in your business. When you get invoices paid, that’s your salary and the bills you pay are your expenses. However, only the money that moves through your bank account is considered valid.

Understanding Accrual Accounting

The approach to accrual accounting is simple. The invoices you get on the delivery of goods or services can be considered as usable revenue. Similarly, you should note expenses in your balance sheet on receiving goods even if those aren’t paid immediately. Things can be confusing for new business owners and those not belonging to the accounting background. Here, you can hire a professional Toongabbie accountant to handle all those complexities and ensure smooth financial management.

Your Takeaways

The accounting management system you select will significantly impact how much tax you will pay. With accrual accounting, you are taxed for the amount you don’t have in your hands. Alternatively, cash accounting involves lower concerns. Opting for the latter part needs you to pay taxes only when you get the money in your account. Usually, big companies are bound with strict standards and suggested using accrual accounting when they make huge money.