Revenue is recorded when cash is received; sent invoices do not count as income
Revenue can be recorded when products or services are delivered/provided; can be before cash is received
Expenses recorded when cash is paid out; bills do not count until paid
Expenses are recorded even when no cash has been paid out
Simple accounting. Shows cash on hand, but may give a less accurate picture of a company’s financial health since it doesn’t show what it owes
Since it includes accounts payable and receivable gives a more complete picture of finances
Best for: smaller businesses that don’t sell directly to consumers
Best for: companies with revenue of more than $25 million over a three-year period or that are publicly traded must use this method, per GAAP regulations (Note: Some entities that are not publicly traded or that do not have revenue of more than $25 million are required to use this method of accounting, depending on inventory and sales levels.)
