Question of the day
2026-11-05
What's the difference between cash-based and accrual accounting?
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
Cash accounting records revenue and expenses when cash actually changes hands. Accrual accounting records revenue when it's earned and expenses when incurred, regardless of cash timing (via receivables, payables, deferred revenue, etc.). GAAP/IFRS use accrual.
⚠ Common wrong answer: "Accrual accounting records revenue when the customer pays and expenses when you get the bill." Why it fails: That flips the definition — accrual recognizes revenue when EARNED and expenses when INCURRED; cash timing is exactly what accrual accounting is designed to ignore.
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