Cash vs Accrual Accounting: Which Is Better?
Cash accounting records income when money hits your bank and expenses when you pay them — simple, but it hides unpaid invoices. Accrual accounting records income when earned and expenses when incurred, giving a true picture of profitability but requiring you to track receivables and payables. Small businesses start on cash and switch to accrual as they grow.
The practical difference: under cash accounting, an invoice you sent in March but got paid for in May shows as May income. Under accrual, it is March income, matched to the period it was earned — and a supplier bill received in March but paid in April is a March expense. Accrual gives your accountant and your bank a more accurate picture, but it requires every invoice — sent and received — to be recorded in the right period. That is the bookkeeping an AI employee like Nika handles: she files incoming invoices the same day, from $0.40 per processed invoice.
Neither method is universally “better.” Cash is simpler and fine for very small businesses with few receivables. Accrual is required above certain turnover thresholds in many EU jurisdictions and is the standard for any business seeking investment or credit. The honest answer is: ask your accountant which applies to your situation, and make sure the records support whichever they choose.
Related questions
Can I switch from cash to accrual accounting?
Yes, and many growing businesses do. The switch requires adjusting entries to recognise existing receivables and payables in the new method. Your accountant handles the transition; the prerequisite is having complete records of every outstanding invoice, which same-day filing provides.
Which accounting method do tax authorities require?
It depends on your turnover and country. Many EU jurisdictions require accrual accounting above a turnover threshold, while allowing cash accounting for small businesses below it. Your accountant confirms which applies to your situation and files accordingly.