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Cash vs Accrual

Cash vs Accrual​

In the world of business finance, there are two primary methods of recording transactions: Cash accounting and Accrual accounting. Each method has its own strengths and is suited to different types of businesses. Fiskl supports both methods, allowing you to choose the one that best fits your needs.

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Fiskl works in a way that allows you to switch between cash and accrual accounting methods without altering your original information. You can generate reports using either method at any time, giving you flexible views of your finances.

Cash accounting​

Cash accounting is straightforward: you record income when you receive payment and expenses when you pay them.

Example:

  • You invoice a client on March 1st for $1000
  • The client pays on April 15th
  • In cash accounting, you record $1000 income in April

Accrual accounting​

Accrual accounting records income when it's earned and expenses when they're incurred, regardless of when money changes hands.

Example:

  • You invoice a client on March 1st for $1000
  • The client pays on April 15th
  • In accrual accounting, you record $1000 income in March

Key differences​

  1. Timing: Cash accounting focuses on immediate cash flow, while accrual accounting focuses on when value is exchanged

  2. Complexity: Cash accounting is simpler, while accrual accounting requires more detailed record-keeping

  3. Financial picture: Accrual accounting often provides a more accurate long-term view of business performance

Benefits of each method​

Cash accounting benefits​

  • Simple to maintain
  • Provides a clear view of current cash position
  • Useful for small businesses with straightforward finances

Accrual accounting benefits​

  • Matches revenue with related expenses
  • Provides a more accurate picture of profitability
  • Required by many lenders and investors
  • Necessary for businesses over certain revenue thresholds in many jurisdictions

Which method should you choose?​

Accrual accounting is widely regarded as the superior method for comprehensive financial management. With tools like Fiskl, managing accrual accounting becomes as straightforward as handling cash-based accounting.

How Fiskl supports both methods​

Fiskl allows you to switch between cash and accrual views in your financial reports. This flexibility enables you to:

  1. See your finances from different perspectives
  2. Make informed decisions based on both immediate cash flow and long-term profitability
  3. Easily transition between methods as your business grows

Remember, understanding these accounting methods helps you make better financial decisions and positions your business for success.