What is the difference between Accrual Basis and Cash Basis Accounting?
The accrual basis method takes into account all revenue and expenses at the moment they are earned or incurred. However, this method works independently of the function of time and whether the money for either revenue or expense has actually been paid yet or not. Therefore, in an accrual system, as long as there is a reasonable expectation that money will be paid in exchange for the service or product the company is providing, it is listed as revenue.
Another accounting practice is called cash basis accounting. This works similarly to accrual basis methods; however, it accounts for revenue only when the payment for the product or service is received, and expense when money is paid out in the effort to earn this revenue. In effect, it is the opposite practice of accrual, as it requires the actual payment to be received, instead of simply anticipating the reception and accounting for it.