Accrual vs cash accounting
Accrual accounting records revenue when earned and costs when incurred, cash accounting when money moves, and a BC owner needs to read both
Under cash accounting, a sale is recorded when the customer pays and a cost when the bill is paid. Under accrual accounting, a sale is recorded when the work is done or the goods are delivered and a cost when it is incurred, regardless of when money moves. Accrual accounting is the basis of most year-end financial statements and of any report a lender, investor or buyer will rely on.
It matters because the two views answer different questions and owners often mix them. Accrual shows whether the business is profitable. Cash shows whether it can pay its bills. A construction company, a school that collects tuition in advance or a subscription business can show strong cash and a loss, or a profit and an empty bank account, in the same month. Reading only one view is how BC owners are surprised.
In practice, we keep the books on an accrual basis with proper cut-off, accruals for work done but not yet invoiced and deferred revenue for money collected but not yet earned, and we report cash separately through the thirteen-week forecast and the cash flow statement. Your CPA sets the accounting policy for the year-end statements. We make sure the management reporting follows the same policy so the two agree.
Start with a finance review.
Ninety minutes with Ali on your cash, margin and pricing. You leave with the four numbers to watch and the two or three moves that change them, whether or not we work together.