The two most common methods of accounting are the Cash method and the Accrual method. For most bookkeepers, accountants, and tax professionals, the easiest is always the Cash method. However, that is not always in the best interest of the business owner or fits both the short and long-term business goals and needs. The Cash method is related to there is no time in between the change of property or services. You give a customer a product or service and the customer pays you. Think of Retail or e-Commerce, You go to the store load your cart up with groceries and check out. The cashier rings your groceries up and you pay the bill for the groceries and leave. Same with e-Commerce, you order something online the online shop takes your payment and ships your order to you.
On of the biggest down falls in this method is it does not match the expenses you pay out to the sales you bring in. Let say you pay for a year of insurance. Money leaves the bank to pay the insurance company right away. You are now covered for insurance for the year. In actuality you have not used a years’ worth of insurance up yet. It skews your income because it is not matched to what you paid out in insurance compared to what you actually used.