Cash basis accounting is straightforward, also, because it recognizes only two kinds of transactions—cash inflows and cash outflows. Using cash basis accounting, income is recorded when you receive it, whereas with the accrual method, income is recorded when you earn it.
Bench assumes no liability for actions taken in reliance upon the information contained herein. The accrual basis is used by all larger companies, for several reasons. This method is more commonly used than the cash method.
The same holds true for expenses. Since a company records revenues before they actually receive cash, the cash flow has to be tracked separately to ensure you can cover bills from month to month.
This type of accounting results can be manipulated by not cashing received checks or changing the payment timings for its liabilities. This helps improve cash flow and helps ensure that your small business has funds available for tax payments.