CAT / FIA FFM Syllabus B. Cash Budgeting - Cash vs. Accrual Accounting - Notes ^{5 / 7}

There are two methods of recording a business's income and expenses.

These methods differ only in the timing of when sales and purchases are credited or debited to your accounts:

1. Cash method (cash basis)

   If you use the cash method, income is accounted for when cash (or a check) is actually received, and expenses are counted when actually paid.

2. Accrual method  (accrual basis)

   Under accrual method, transactions are accounted for when they happen, regardless of when the money is actually received or paid.

   So income is counted when the sale occurs, and expenses are counted when you receive goods or services. 

   You don't have to wait until you see the money or until you actually pay money out of your checking account.