By Vilms Consulting Partner KATHLEEN PINDER.

If you’ve ever looked at your Profit & Loss (P&L) and thought, “Wait, we made that much? But where’s the cash?” …then this post is for you.

If you’re a growing small business, there’s a good chance you started out using cash accounting and for good reason. It’s simple, intuitive, and tells you what’s in the bank today. But as your business becomes more complex, that simplicity can start to obscure your true financial picture. That’s where accrual accounting comes in. Let’s break down the differences between cash and accrual accounting, and why accrual is a smart move for growing businesses.

Cash vs. Accrual Accounting: What’s the Difference?
CASH ACCOUNTING records income when cash is received and expenses when they’re paid. Think: “Money in, money out.”
ACCRUAL ACCOUNTING records income when it’s earned and expenses when they’re incurred, regardless of when cash moves. Think: “Work done, value delivered — even if the money comes later.”
Example:
You send a $10,000 invoice in June and get paid in August.
– Cash accounting shows $0 revenue in June and $10,000 in August.
– Accrual accounting shows $10,000 revenue in June, when the work was completed.

Why Accrual Accounting Is Better for Growing Businesses
Here’s why switching to accrual accounting can set your business up for smarter decisions and sustainable growth:

A More Accurate Picture of Revenue Timing and Profitability
Accrual accounting aligns your income and expenses with the actual period they relate to. This gives you a clearer view of how your business is performing, not just how much cash is sitting in your bank account. It’s especially helpful when:

• Projects span multiple months
• You bill clients after work is completed
• You have recurring revenue or deferred payments

Accrual Accounting Enables Real Budgeting, Forecasting, and Cash Flow Planning.

You can’t forecast what you can’t see.

With accrual accounting, your books reflect the full financial story, which is essential when you’re ready to:
– Build a meaningful budget
– Forecast revenue and expenses
– Plan cash flow cycles around collections and upcoming expenses

It’s a proactive vs. reactive approach and it can be a game changer!

Visibility Into Outstanding Receivables (AR)
Accrual accounting tracks Accounts Receivable (AR), giving you insight into how much money is owed to you and when it’s expected to come in. This visibility helps you:

• Identify late payers or bottlenecks
• Improve cash flow collection timing
• Make smarter spending and investment decisions

Cleaner Reporting For Lenders, Investors, or Future Strategic Planning.
Whether you’re applying for a line of credit, talking to potential investors, or simply planning your next big move, accrual-based reports are:
– More professional
– More reliable
– More aligned with GAAP (Generally Accepted Accounting Principles)

Lenders and investors want to understand your financial health, not just your bank balance. Accrual accounting helps you speak their language.

Bottom Line: If You’re Growing, It’s Time to Graduate from Cash Accounting
While cash accounting is simple and works well early on, accrual accounting helps you see what’s really happening in your business and plan for what’s next. It gives you the tools and visibility to scale with confidence.

Up Next: Now That You’re Using Accrual Accounting… Stay tuned for my next post:
“Now That You’re Using Accrual Accounting: How to Budget, Forecast, and Understand Your P&L, Balance Sheet, and Cash Flow (They Work Together in Perfect Harmony; the Original Triangle Offense Before Phil Jackson).” Because yes, these reports form your financial dream team. And we’ll show you how to use them like a pro.

Need help making the switch to accrual accounting or getting set up with better financial tools and support? We’re here to help, just reach out.