Cash versus accrual

While you’re waiting for my full disquisition on this subject, which will undoubtedly be as masterful as it will be prompt, please know these basics:

1. Cash and accrual are two different methods of keeping books.

2. Cash and accrual are always going to be weirdly different. You will waste precious hours of your life, for example, if you try to tie out a client’s net income or total equity (i.e., its accrual value) with its bank balance (i.e., its cash value). Cathy Keeps Books has done this. Learn from her mistake.

3. Here are some of the main things that make cash different from accrual.

  • Accounts receivable. Does the P&L show funds that have not yet been received in the bank?
  • Accounts payable. Does the P&L show expenses that have not yet been disbursed?
  • Depreciation and other non-cash income or expense.
  • Timing of various items that fall under the above.
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