Ads end in 20 seconds
This content is free thanks to our sponsors
Sponsored Ad – I may earn a commission if you click and buy
Accounting
Accrual Accounting
A method where you record revenue when it's earned and expenses when they're incurred, not when cash actually changes hands.
Accrual accounting follows the matching principle: match revenues with the expenses that helped create them in the same period. It's required for most larger businesses and gives a more accurate picture than simple cash accounting.
Small online businesses sometimes start with cash accounting (easier) but switch to accrual as they grow. It shows obligations like unpaid supplier bills or earned but unpaid client invoices on the books.
It's like promising your friend you'll pay them back for pizza next week. You record the "expense" the moment you eat the slice, not when you actually hand over the money. Businesses do the same so their books show the true picture of what's happening right now.
Real world: A YouTuber signs a $10,000 sponsorship deal in December but gets paid in January. With accrual accounting, they record the revenue in December (when earned) even though the cash arrives later. This helps them see their real yearly performance.
💡 Accrual accounting tells the real story of your business performance, not just the current state of your bank account.