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1 Hour (On-Demand)
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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. 

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: November 23, 2020

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

16 Reviews (37 ratings)Reviews

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.
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.
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
Member's Profile
Understanding the Cash and accrual basis of accounting has provided a fundamental guide when dealing with Sales and Payable process.
Anonymous Author
I think some exam questions could have been worded better, however the lesson gave a good understanding of cash v accrual.
Anonymous Author
I have only worked with accrual accounting so it was a good course to extend my knowledge with other accounting ways.
Anonymous Author
This course was informative and gave a good description of the difference of Accrual and Cash accounting
Member's Profile
This was good.I am getting a clearer picture of the which accounts to Debit and Credit, very helpful.
Member's Profile
I like seeing examples of different scenarios. I believe it helps to see how the flow goes.
Member's Profile
Great review of the key differences and good examples used. Like Lynn's explanations.
Anonymous Author
Good overview of the different methods, and the advantages and disadvantages of each.
Member's Profile
Very informative... I have now a better understanding of the whole picture...
Member's Profile
I have more understanding of the difference between cash and accrual basis.
Member's Profile
Again more examples and maybe add worksheets for people to pratice.
Member's Profile
Great explanation and examples. Clear presentation.
Anonymous Author
It was very comprehensible and easy to understand.


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

Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
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 .
Course Syllabus
  3:33Introduction to Bookkeeping Basics– Accrual vs. Cash Accounting
  8:40Cash Basis
  12:06Accrual Accounting
  11:26Accural Accounting Continued
  3:26Advantages/ Disadvantages
  2:11Analyzing Accrual Accounting
  52:28Bookkeeping Basics– Accrual vs Cash Accounting
  PDFSlides: Bookkeeping Basics– Accrual vs. Cash Accounting
  PDFBookkeeping Basics– Accrual vs. Cash Accounting Glossary/Index