What you’ll learn to do: Identify fundamental principles of accrual based accounting

As regular people, most of us keep track of the money in the our bank accounts, along with some of our bills (maybe sitting in a pile on our counter), and in our heads, we have an idea of the nature and amount of income we are expecting in the near future. In essence, we are using what accountants call the “cash basis” of accounting.

Business finances can be much more complex than our individual lives. We need a more sophisticated way to track how much we owe, who owes us, and what we own. To track this information, we use a more comprehensive system of accounting known as “accrual basis.” Think of accrual basis accounting as an economic picture of our business, rather than just tracking cash that comes in and out.