Cash vs. accruals

A question from Yahoo! Answers:

What’s the difference between “cash” and “accrual” methods?

Under cash accounting, you record transactions when you pay or receive payments. Under accruals accounting, you record transactions when you have a reasonable expectation of having to pay or getting paid.

For example, you sell something on credit and get paid 30 days later. If you use cash accounting, you record a sale when you receive the payment. Under accruals accounting, you record the sale (and related increase in accounts receivable) when you ship the order; when payment comes in, you record an increase in cash and a decrease in accounts receivable.

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