What’s the difference between cash and accrual accounting?

This is best explained by example… Example 1. I work for you in March, and I send my invoice to you in April (for the work I did in March). You have 30 days to pay the invoice, so the payment happens in May. If you use cash accounting, you record the payment in May, when the payment took place. If you are on accrual accounting, you record the payment in March when the expense was incurred. That’s the basic idea -- for cash accounting, you record transactions when they happen, and in accrual accounting, you record income when it was earned and expenses when they are incurred (that’s a simplification, but it’s the basic idea). Example 2. You forgot to make your rent payment in October, so you sent 2x the October rent in November to cover both months. If you use cash accounting, you record $0 rent expense in October and the whole 2x rent in November. If you use accrual accounting, you record October rent expense in October and November rent expense in November regardless of when the cash flow(s) take place.