What is the difference?

Cash basis records revenue when cash is received and expenses when cash is paid. Accrual basis records revenue when earned and expenses when incurred, regardless of when cash moves. The same business shows different monthly results under each method because the recognition timing differs.

The December invoice dilemma

You complete a $50,000 project in December. Payment arrives in February. Cash basis: no December revenue, $50,000 February revenue. Accrual basis: $50,000 December revenue. The difference affects which tax year includes income and how accurately statements reflect performance.

Running both methods

Some firms maintain accrual books for management decisions and convert them to cash for tax returns. This is allowed, and software handles the conversion. You get accurate performance measurement internally while preserving tax timing flexibility externally.