Cash or Accrual—What’s Better?

So I was asked via a survey to cover Cash vs Accrual basis so we are doing a newsletter today on that! Thanks to each of you who have taken a few seconds to answer any of the surveys I post. I read all answers and appreciate that more than you know. Now, let’s get into this amazing topic!!!

When it comes to tracking your income and expenses, not all accounting methods are created equal. Whether you're running a side hustle (check mine out here), freelancing, or just want to understand how your finances are recorded, it's helpful to know the difference between cash accounting and accrual accounting.

If you’ve ever looked at your income and wondered, “Why doesn’t this match what’s in my bank account?” you’re not alone. The way you track money matters, and it all comes down to the method you use.

Both are legitimate ways to handle your finances, but they tell very different stories. One is simple and based on real-time cash, while the other gives a clearer picture of profitability and timing.

Cash Accounting…Simple and Real-Time

Cash accounting is straightforward: you record income when the money hits your account, and you record expenses when the money leaves. That’s it. No tracking invoices or bills unless the cash is moving.

This method is ideal if you want a quick and easy way to monitor your available cash. It’s often used by individuals, freelancers, and small businesses that don’t carry inventory or deal with complicated billing cycles.

Why people like cash accounting:

• Easy to understand and manage

• Matches bank activity exactly

• Good for tracking short-term cash health

When it works best:

• You’re paid at the time of service

• You don’t send or manage invoices

• Your business is smaller or more service-based

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Accrual Accounting…Clearer Long-Term Picture

Accrual accounting goes deeper. Income is recorded when it’s earned even if the payment hasn’t arrived yet. Expenses are recorded when they’re incurred, not when you pay them.

This method gives you a more accurate view of how your business is really performing, especially if you deal with invoices, purchase orders, or recurring billing.

Why accrual accounting matters:

• Shows true profitability by matching income with related expenses

• Helps with forecasting and decision-making

• Often required if your business grows or seeks funding

When it works best:

• You invoice clients or get paid after delivering work

• You carry inventory or manage suppliers

• You want visibility into future performance, not just today’s balance

So Which One Should You Use?

If you’re looking for simplicity and want to know exactly how much cash you have on hand, cash accounting might be the best fit. But if you’re growing, dealing with customers or vendors on terms, or want deeper insights into your business health, accrual accounting gives you the edge.

Many people start with cash and shift to accrual as their finances get more complex. What matters most is picking the system that gives you clarity and helps you make better decisions.

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Contact me if you’d like to network or partner together. I’d love to chat with you more about the services I offer on the side through Guernsey Consulting. If you do not know, I work full time in Treasury Management and do consulting on the side. Would love to chat or network with you about it.

Some of those services are listed below that we can help you with!