What is the difference between cash-based accounting and accrual?

Companies can use one of two accounting methods: cash basis or accrual basis. The main difference between accrual and cash basis accounting is the timing of revenue and expense recognition. The cash method recognizes revenue and expenses immediately, whereas the accrual method focuses on anticipated revenue and expenses. Revenue is accounted for when it is earned under the accrual method.

Under cash-based accounting, Revenue is reported on the income statement only when cash is received under this method. Expenses are only recorded when cash is paid out. Small businesses and individuals typically use cash as a payment method.