Cash Basis vs. Accrual Basis Accounting Explained: Which Is Right for Your Business?

Рет қаралды 1,532

Күн бұрын

Confused about cash basis and accrual basis accounting? You're not alone!
In this video, Hannah dives deep into these two fundamental accounting methods. She breaks down their differences in a clear and straightforward way, helping you understand how each method works and the impact they can have on your business's financial reporting.
Whether you're a small business owner trying to keep your books straight or just looking to improve your financial literacy, this video will guide you through choosing the best accounting method for your business needs.
In this video you will find:
0:00 Cash vs Accrual
0:24 - Cash Basis Accounting
1:07 - Examples of Cash Basis Accounting
2:06 - IRS Constructive Receipt Concept
3:32 - Cash Basis Expenses
5:01 - Businesses That Must Use Accrual Accounting
5:51 - Accrual Basis Accounting
6:21 - "Earned" and "Incurred"
7:00 - Example: Accrual Accounting for Service Businesses
8:00 - Revenue Recognition in Accrual Accounting
10:28 - Accrued Expenses
11:00 - Matching Principle in Accrual Accounting
13:22 - Voluntarily Switching to Accrual Accounting
14:25 - Reporting Financials to the IRS
15:22 - Complexities of Accrual Accounting
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Hannah Smolinski is a #CPA and the Founder of Clara CFO Group. Find out more about Clara CFO Group at claracfo.com/
Disclaimer: This video is intended for educational purposes and should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Clara CFO Group, LLC is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience.
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Пікірлер: 18

@babsoneverything3060 Ай бұрын

Thank you! I have been a bookkeeper for several years, and I never fully understood this.

@ClaraCFO Ай бұрын

Glad it was helpful!

@ccafKhmer Ай бұрын

Thank you very much! We are using Cash basis

@ClaraCFO Ай бұрын

Great! Me too :)

@HectorGarciaCPA Ай бұрын

Great content!

@ClaraCFO Ай бұрын

Thanks Hector!

@geminigenius23 Ай бұрын

Excellent Teacher

@ClaraCFO Ай бұрын

Thank you! 😃

@RohitSharma-mn7he Ай бұрын

Thanks ❤

@ClaraCFO Ай бұрын

You're welcome 😊

@AljaneCatesio 27 күн бұрын

Thanks for this! Started learning how to do bookkeeping for our company. Just one question, how do you record a contract total cost (consulting firm) payable by the client in 2 milestones in cash basis acctg.? Do I only record it as revenue the moment we receive their payment per milestone? Meaning the transactions that will only appear under that "client" are the 2 revenue transactions? Thank youuuu.

@ClaraCFO 24 күн бұрын

Yes - you got it. You will invoice the client for those milestones when it is time and revenue is recorded when the client PAYS!

@RickyCHSWindowCleaning Ай бұрын

How would this work for payroll? Work performed in May but paid out in June

@ClaraCFO Ай бұрын

Yes, so if you are accrual-based, you would record an accrual JE to book the labor expense in May. But if you are cash basis, you would just record the expense when the payroll is paid!

@RickyCHSWindowCleaning Ай бұрын

@@ClaraCFO Ah, got it. I run all my books on a cash basis because I am a smaller company and its easier for me. But I love the concept of accrual so I can have more accurate stats of my business. Any suggestions on how I can report with cash and analyze my financials internally with accrual? I just use quickbooks online right now..

@MarkPlassmeyer Ай бұрын

If a small business uses the accrual method, how important is it to accrue monthly utility costs? For example, the January 15th to February 14th electric bill is $100, the February 15th to March 14th electric bill is $115, etc. If the business is only concerned about year-end financials, is it only really necessary to accrue electric bill expenses at year-end, or should they still be estimated and accrued monthly?

@ClaraCFO Ай бұрын

If the only outside party using the financials on an accrual basis is the IRS at the year-end, I would only worry about doing accrual adjustments as of 12/31. So I wouldn't bother with monthly accrual entries for utilities - especially since they stay basically the same throughout the year. For small business owners not having to produce financial statements according to GAAP (generally accepted accounting principles) - you just need to think about making the financials correct enough for management and also correct for reporting taxes (which just means they need to be adjusted for accruals at the end of the year).