What is the difference between cash and accrual accounting?

1 Answer | Add Yours

litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

I found some good informative links for you, and I have included them below.

Both cash and accrual accounting are ways of keeping track of how many money a company has.  Basically, the main difference is when you record a transaction.

Cash accounting means that you don’t record income until you actually have the cash in your hand.  Let’s say you open a lemonade stand.  You keep a ledger and record every time someone buys a drink.  They buy the drink and hand you the money.  You put the money in a jar and record the cash in the ledger.  Since you always do both at the same time, the amount of money in the ledger should match the money in the jar.  If someone promises to buy a cup from you tomorrow, you don’t record it in the ledger because you don’t have any money for the jar.  You may or may not give the person the lemonade, but you probably will not.

Accrual accounting is when you record a transaction before you actually get the cash in hand.  Let’s say the person who promises to pay you for the lemonade tomorrow is a cute boy you’ve had your eye on.  You give him the lemonade to get on his good side.  You gave out the lemonade, so for accounting purposes you have to record the transaction somewhere.  So you mark in the ledger, with a note that you don’t have the money yet.  Now the money in the jar does not match the ledger, but tomorrow it will.  Hopefully 

Both cash and accrual accounting are ways of keeping track of how many money a company has.  Basically, the main difference is when you record a transaction.

Cash accounting means that you don’t record income until you actually have the cash in your hand.  Let’s say you open a lemonade stand.  You keep a ledger and record every time someone buys a drink.  They buy the drink and hand you the money.  You put the money in a jar and record the cash in the ledger.  Since you always do both at the same time, the amount of money in the ledger should match the money in the jar.  If someone promises to buy a cup from you tomorrow, you don’t record it in the ledger because you don’t have any money for the jar.  You may or may not give the person the lemonade, but you probably will not.

Accrual accounting is when you record a transaction before you actually get the cash in hand.  Let’s say the person who promises to pay you for the lemonade tomorrow is a cute boy you’ve had your eye on.  You give him the lemonade to get on his good side.  You gave out the lemonade, so for accounting purposes you have to record the transaction somewhere.  So you mark in the ledger, with a note that you don’t have the money yet.  Now the money in the jar does not match the ledger, but tomorrow it will.  Hopefully

We’ve answered 318,994 questions. We can answer yours, too.

Ask a question