Within accounting and bookkeeping, two types of accounting methods are utilized to record transactions.  These methods are at the core of both the accounting and bookkeeping functions.  They include:

  • Cash Accounting – which recognizes revenue and expenses only when money changes hands.
  • Accrual Accounting – which recognizes revenue when it is earned and expenses when they are incurred or obligated (separate from the time at which they may be paid).

To ensure your entity is properly recording and tracking transactions, it is important to understand the basic variances between cash and accrual accounting and when they are best utilized. It's pretty much "all in" once you make this decision.

The cash approach may be preferred where all or most of the following conditions apply; the company uses single-entry accounting, has relatively few financial transactions per day, does not sell on credit (does not deliver goods or services and then invoice customers for payment later), at the time of sale customers must pay either by cash, written check, bank transfer, or 3rd-party credit/debit card, and, finally, has very few employees.

The accrual basis is used by all larger companies, for several reasons. Its use is required for tax reporting when sales exceed $5 million, for public companies that trade shares on stock exchanges which are required to follow GAAP which requires accrual-based accounting, and when investors want the most accurate picture possible of the state of a company's finances. A company's financial statements can only be audited if they have been prepared using the accrual basis. 

This course examines how each method impacts a business’ financial position and financial statements.  We utilize various scenarios and compare and contrast the two methods.

NOTE: This course is one of a series of courses developed for the Professional Bookkeeping Certification program on Illumeo. The full curriculum of courses will provide you with the ultimate foundation to a career as a bookkeeper. 

Note: Information within this course comes from readily available public domain documents and is utilized by the trainer as a supplement for relaying the course content.

Learning Objectives
  • Explore the cash basis of accounting.
  • Explore the accrual basis of accounting.
  • Introduce the concept of reversing entries.
  • Explore the advantages and disadvantages of cash basis and accrual basis accounting.
  • Explore the analytics of accrual accounting.
  • Recognize how to compare and contrast the accounting methods through examples.
Last updated/reviewed: August 15, 2023

Included In Certifications

This course is included in the following Certification Programs:

14 CoursesProfessional Bookkeeping Certification

  1. Bookkeeping: Terminology and Process Execution
  2. Bookkeeping: Debits And Credits
  3. Bookkeeping: Cash vs. Accrual
  4. Bookkeeping: Payroll And Expenses
  5. Bookkeeping: Legal Entity And Chart Of Accounts
  6. Bookkeeping: Journals, Subsidiary Ledgers and General Ledger
  7. Bookkeeping: Responsibilities
  8. Bookkeeping: Fixed assets and inventory
  9. Bookkeeping: Accounts Payable/Accounts Receivable And Receipts
  10. Management Internal Control Essentials
  11. GAAP Principles, Assumptions and Considerations
  12. GAAP Presentation of Financial Statements
  13. Bookkeeping Basics – Case Study Scenario
  14. Useful Bookkeeping Tools
44 Reviews (150 ratings)

Reviews

5
Anonymous Author
The information and the format presented were very good. The instructor did a good job in comparing and explaining cash and accrual accounting. I really appreciated the different examples given. Those who use double or single entry accounting would benefit from this course.

5
Member's Profile
I learned the difference between cash and accrual methods of accounting. Cash method is used mostly by sole proprietors and small business with annual sales no more than $5 millions. Accrual method is used by larger businesses and is compliant with GAAP and SEC rules.

5
Anonymous Author
I enjoyed this course and was very detailed and easy to follow and to understand. I would definably go back and review the files to refresh. This course explains the difference between cash vs Accural good enough that even beginners would understand.

5
Member's Profile
This was a good refresher course for me. It touched on the importance of understanding the difference of using accrual-based accounting versus cash based. Will keep the information I learned and keep it in mind when doing my day-to-day work tasks.

3
Anonymous Author
At one point, based on the dialogue, I expected to see illustrations of a cash vs. accrual IS side by side, but the visual aids did not appear. I think it would've been easier to follow with the visual aids.

5
Anonymous Author
excellent overview course on comparison between cash and accural accounting. This is a must course if your new to subject matter or you need an update. The examples are very well done and explained.

5
Member's Profile
Lots of great examples on the differences between cash and accrual accounting practices. Information was clearly presented, which made retaining the information much easier.

5
Member's Profile
Lynn we are on a roll today. Thanks to your easy to listen to style, I can spend hours and hours in your training programs. You are the best. Thanks for all you do, Larry

4
Anonymous Author
Very helpful in understanding the differences between accrual accounting and cash basis accounting. This helped me learn the debit and credit rules as well.

5
Anonymous Author
good overview on the different accounting basis and good discussion on the major differences between them and when relevant to switch from one to the other.

5
Anonymous Author
Good information, I look forward to more information about reversing entries as I found this concept a little confusing. Good examples.

5
Member's Profile
Understanding the Cash and accrual basis of accounting has provided a fundamental guide when dealing with Sales and Payable process.

4
Anonymous Author
I think some exam questions could have been worded better, however the lesson gave a good understanding of cash v accrual.

4
Anonymous Author
I have only worked with accrual accounting so it was a good course to extend my knowledge with other accounting ways.

4
Anonymous Author
Good refresher course. I would liked to have seen some of the financial statements to go along with the examples.

4
Anonymous Author
This course was informative and gave a good description of the difference of Accrual and Cash accounting

5
Anonymous Author
The course provides a series of examples that are useful in understanding and processing the materials.

5
Member's Profile
This was good.I am getting a clearer picture of the which accounts to Debit and Credit, very helpful.

4
Member's Profile
Content delivered well. Study guide should be provided to help student retain the information better

5
Anonymous Author
Great overview of debits and credits and good use of detailed examples to illustrate the points.

5
Member's Profile
Lynn's course on cash vs accrual was fantastic! Good,insights for when cash basis can be e used

5
Member's Profile
I like seeing examples of different scenarios. I believe it helps to see how the flow goes.

4
Anonymous Author
Good course. A lot to take in. Good examples, maybe more examples would be even better.

3
Anonymous Author
This material was a little confusing. I think some more examples would've been helpful

5
Member's Profile
Great review of the key differences and good examples used. Like Lynn's explanations.

5
Anonymous Author
I really enjoyed this course. Lots of examples and information that I can use at home.

4
Anonymous Author
Good overview of the different methods, and the advantages and disadvantages of each.

5
Anonymous Author
The lessons were easy to follow, and the examples really helped it all come together.

4
Member's Profile
Reasonably well-planned orientation for the topic. Easy to understand and follow.

5
Anonymous Author
Great course and very informative on the topic at hand would recommend to others.

4
Member's Profile
The course keeps the subject on track. It teaches and then affirms the knowledge.

5
Member's Profile
Very informative... I have now a better understanding of the whole picture...

5
Member's Profile
Very good explanation of this topic. Instructor really simplifies the process.

3
Member's Profile
It was good material but a lot of material . it was harder than i thought

4
Member's Profile
I have more understanding of the difference between cash and accrual basis.

4
Member's Profile
You are very good at explaining the meanings of Cash and accrual accounting.

4
Member's Profile
Excellent review for someone with previous knowledge, thorough and concise.

5
Member's Profile
Very informative course with in-depth explanations and great examples.

5
Member's Profile
This was a great review on Cash vs Accrual! Examples were very helpful!

4
Member's Profile
Again more examples and maybe add worksheets for people to pratice.

5
Member's Profile
Bookkeeping: Cash vs. Accrual - kept me on the edge of my seat.

5
Anonymous Author
Easy to understand, relevant information! Highly recommend!

5
Member's Profile
Great explanation and examples. Clear presentation.

5
Anonymous Author
It was very comprehensible and easy to understand.

Prerequisites
Course Complexity: Foundational

No Advanced Preparation or Prerequisites are needed for this course. However, it is recommended to take the other courses in the series prior to completing this one.

Education Provider Information
Company: Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact: For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .
Instructor for this course
Course Syllabus
INTRODUCTION AND OVERVIEW
  Introduction to Bookkeeping Basics– Accrual vs. Cash Accounting3:33
  Cash Basis8:41
  Accrual Accounting12:06
  Accural Accounting Continued11:27
  Advantages/ Disadvantages3:27
  Analyzing Accrual Accounting2:12
  Example10:26
  Summary00:39
CONTINUOUS PLAY
  Bookkeeping Basics– Accrual vs Cash Accounting52:31
SUPPORTING MATERIALS
  Slides: Bookkeeping Basics– Accrual vs. Cash AccountingPDF
  Bookkeeping Basics– Accrual vs. Cash Accounting Glossary/IndexPDF
REVIEW AND TEST
  REVIEW QUESTIONSquiz
 FINAL EXAMexam