Cash Basis vs. Accrual Basis Accounting

In cash basis accounting, income and expenses are recorded as they are received or spent.  In accrual basis accounting, income and expenses are charged to an account when they are incurred—in other words, when an order is made.  The two types of accounting have different strengths, based on how you spend or receive money. For a business that has inventory, cash basis accounting is usually better. For a business that offers a service and receives payment on a monthly basis or bills for later payment of that service, accrual basis accounting is usually better.