Should you use Cash or Accrual

 Accounting?

One of the first decisions you have to make when setting up your bookkeeping system is 

whether or not to use a cash or accrual accounting system. If you are operating a small, one-

person business from home or even a larger consulting practice from a one-person office, you 

might want to stick with cash accounting. If you use cash accounting, you record your 

transaction when cash actually changes hands. Cash can be anything from actual money to 

electronic funds transfer. Sometimes firms start their business using cash accounting and 

switch to accrual accounting as they grow.

If you are going to offer your customers credit or if you are going to request credit from 

your suppliers, then you have to use an accrual accounting system. Using accrual 

accounting, you record purchases or sales immediately, even if the cash doesn't change 

hands until a later time, such as in the case of Accounts Payable or Accounts Receivable.

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