So, in the house example, if you spent $200 for paint, the expense is realized when the job is completed along with the $1,000 fee. The downside is that accrual accounting doesn’t provide any awareness of cash flow; a business can appear to be very profitable while in reality it has empty bank accounts. Accrual basis accounting college homework helper without careful monitoring of cash flow can have potentially devastating consequences. If you receive an electric bill for $1,700, under the cash method, the amount is not added to the books until you pay the bill. However, under the accrual method, the $1,700 is recorded as an expense the day you receive the bill.

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Accrual basis accounting applies the matching principle – matching revenue with expenses in the time period in which the revenue was earned and the expenses actually occurred. This is more complex than cash basis accounting but provides a significantly better view of what is going on in your company.