Will you use a cash-based or accrual-based accounting system?

(This is an excerpt from https://www.hiscox.com/blog/business-bookkeeping-101-what-every-small-business-owner-needs-know, written by Kathleen Moore, and shared with appreciation.)

Bookkeepers use two accounting methods for tracking funds: cash-based or accrual-based. Here, again, the size of your business may be the determining factor for your choice.

Many small businesses use cash accounting to record their transactions because it gives an accurate snapshot of their available cash without any delay. In essence, this method only records what is actually in your coffers, not what you are owed. So, if a customer leaves your business with $2,500 in goods today, that $2,500 will not show up as an accounts receivable credit of

$2,500. It will show up as cash when the customer pays his bill. And if you order $2,500 in supplies from a vendor, that money will not be debited until you write the check.

The opposite is true with an accrual method. The bill you issue that customer will immediately be recorded in the books as a credit to accounts receivable. And your inventory account (assets) will be debited by $2,500.

Not surprisingly, many larger businesses choose the accrual method to achieve a more complete picture of their financial and operational health.