Financial reporting for a business can be done on a cash or accrual basis, which affects timing of revenue and expenses.
Cash basis recognizes revenue when received and expenses when paid. Accrual basis records revenue when billed and expenses when invoiced.
For taxes, cash basis is required as it matches revenue and expenses to actual cash flow. Accrual may include money not yet received.
For valuation and financing, accrual better captures the true financial position by recording outstanding invoices not yet paid.
Understand which method you’re using and the implications. Cash basis for tax filings to avoid prepaying taxes on uncollected invoices. Accrual better for showing full financial picture third parties.
