April- 27 Evaluating Financial Performance BUS 3620

Cash vs Accrual. Which is best? For a very small business or self employment, cash accounting is best. The accrual view point is usable for small business by analyzing what accounts receivable and payable are coming. When I was self employed doing remodeling, I used the cash accounting for my books for years. However to measure performance of sales and forecasting, I switched my accounting reports to accrual. With the accrual method I could analyze sales and accounts receivable much more accurately even though getting paid was sporadic. Then I could compare the A/R to accounts payable A/P and hopefully the difference was better than previous months or years.