"The main difference between accrual accounting and cash accounting is when revenue and expenses are recognized. Under cash basis accounting, revenue and expenses are recognized when cash is received and paid. Under accrual accounting, revenue is recognized in the period it is earned and expenses are recognized in the period they are incurred. While cash basis accounting is easier to implement, accrual accounting is used by most businesses and presents a clearer picture of a company's overall financial health."

The key difference between the two approaches is timing. Cash-basis accounting documents earnings when you receive them and expenses when you pay them. However, the accrual method accounts for earnings the moment they are owed to you and expenses the moment you owe them; it does not matter when your money enters or leaves your account. That is important, as receiving or sending payment is not always immediate.