The accrual method and the cash method are the two main accounting methods used to record transactions in accounting. The main difference between these methods is at what point in time transactions are recognized. In the long run, the financial results of both methods converge.
🔹 Cash method
When the cash method is applied:
Any funds received in the cash register or settlement account are recognized as income
Any payments and transfers made during the accounting period are considered expenses
This method does not assume that income and expenses belong to the same period.
🔹 Accrual method
According to the accrual method:
Revenue for a certain period is recognized at the cost of goods sold and services provided during that period, regardless of the time of payment
Expenses are recorded based on the cost of goods sold and services provided, as well as goods and services consumed by the enterprise
In this case, it does not matter whether the supplier is paid or not.
📌 Choosing the right accounting method is of particular importance in terms of the correct formation of financial results and reducing tax risks.
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