Accrual Accounting

What is accrual accounting?

Accrual accounting records revenue when you earn it and expenses when you incur them—not when money changes hands. If you complete a landscaping job in March but get paid in April, accrual accounting records that income in March.

This method gives you a more accurate picture of your business's financial health because it matches income with the work that generated it, regardless of payment timing.

Accrual vs. cash basis accounting

The key differences:

• Accrual accounting — Records transactions when they happen, not when cash moves. Better for seeing true profitability.
• Cash basis accounting — Records transactions only when money is received or paid. Simpler, but can misrepresent your actual financial position.

When to use accrual accounting

Accrual accounting makes sense when:

• Your business has significant gaps between completing work and receiving payment
• You carry inventory
• You need accurate financial statements for loans or investors
• Your annual revenue exceeds IRS thresholds requiring accrual method

Many small contractors use cash basis for simplicity, but accrual accounting provides better insights for growing businesses making strategic decisions.