What Is Cash vs. Accrual Accounting?

Cash basis accounting records income when you receive it and expenses when you pay them — simple and common for small businesses. Accrual accounting records income when it's earned and expenses when they're incurred, regardless of when cash changes hands. For tax purposes, most small businesses (under $30 million in average annual gross receipts) can use cash basis, which is simpler. Larger businesses or those with inventory may be required to use accrual. The method you choose affects when income and deductions hit your return.