Bookkeeping 101: Cash vs accrual systems

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Bookkeeping 101: Cash vs accrual systems

If you are starting your own business, this handy link provides easy to understand explanations of basic financial terms.


If you're new to being involved in the running of a business, the site has quite a bit of free, handy guides.
In addition to this glossary of financial terms and free iPad apps for business owners, the site now has a collection of articles covering business financing.
The advice starts with the basics (a paper-based system is still suitable in some circumstances, though if you do use a computer-based system "a good backup procedure with external off-site storage is vital") and provides pointers to sources of assistance.
Here is what the site states about cash vs accrual bookkeeping:
  • Cash-based accounting: A cash-based accounting system records transactions at the time the cash was paid or received, regardless of when the transaction occurred. While this method is simpler and uses less paperwork, it can be prone to errors. Generally, it’s suited to smaller businesses that operate mainly with cash transactions.
  • Accrual-based accounting: An accrual-based accounting system records transactions at the time they occur, whether the payment is made now or in the future. While this is a more widely used method and tends to be less prone to errors, it can be more complex. This method is suited to all types of businesses and makes reporting complex transactions like extending credit and wages much easier. 
The site also outlines the different types of external financing and explain which are appropriate in different circumstances.
There's also guidance on getting your financial affairs in shape before seeking a loan and tips on what to do if a financing application is rejected.
The material isn't all new, but providing a single entry point makes it easier to find the information you need. The guides are not very detailed, but they aren;t supposed to be exhaustive, rather a "here's what you need to know" for would-be and fledgling business owners.


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