Example of Cash vs. Accrual

The difference in net income for a company can be large, depending on the accounting method. In this example, the choice of cash versus accrual means the difference between profit and loss for the period.

A small service company invoiced $10,000 in September, but received only $5000. Their total purchases were $8000, but they deferred payment on $2000 of that.

Account Type

Cash-Basis

Accrual

Income

$5,000

$10,000

Expense

$6000

$8000

Net Income

- $1000

+$2000