Cash basis accounting and accrual basis accounting are competing methods of recording business transactions.  The cash method is generally used by small businesses to record revenues when cash is received and to record expenses when cash is paid.  Alternatively, the accrual method of accounting is used to record income when it is earned and to record expenses when they are incurred.  For many companies the difference between these methods is not significant.  While for other companies with large accrual items (such as large accounts receivable, work in process, etc. and large payables, or accrued liabilities) the differences between these two methods can be significant and affect decision making.  Please see our newsletter on this topic for more information.