First: Cash Basis Accounting

This method records transactions only when cash is received or paid.

Example: If you issue an invoice but haven’t received payment yet, it’s not recorded as income.

• ✅ Easy to understand and apply
• ✅ Gives a clear picture of cash flow
• ❌ Doesn’t reflect actual profit or performance

Best suited for:

• Very small businesses
• Businesses with few payables/receivables
• Those mainly focused on tracking cash flow

Second: Accrual Basis Accounting

In this method, transactions are recorded when they occur, not when cash changes hands.

Example: You sell a product today and issue an invoice — revenue is recorded immediately, even if the payment comes a month later.

• ✅ Reflects true financial performance
• ✅ More accurate for reporting and financial analysis
• ❌ Requires close monitoring of receivables and deferred expenses

Best suited for:

• Medium to large businesses
• Businesses dealing with clients and suppliers on credit
• Those needing detailed reports and regular financial analysis

So… Which One Should You Choose?

• If you're in the startup phase or your operations are simple and straightforward → Cash accounting might be a good place to start.
• But if your business is growing, you're dealing with invoices and delayed payments, or you want a more accurate picture of your performance → Accrual accounting is the way to go.

🔔 And remember: most government entities, banks, and investors prefer reports based on the accrual method.

How Can Sutumatic Help You?

Sutumatic gives you full flexibility:

• Supports both cash and accrual accounting
• Automatically converts transactions when needed
• Generates reports based on the accounting method you choose