Cash or Accrual? Wrong Question.
Profitable businesses still run out of cash; let's trace that problem back to its root
No 2 sets of financial statements will be identical.
There are several choices during the “construction” phase of preparing the numbers which cause yours to look different from mine:
Which accounting method you’ll choose
How you’ll setup your “chart of accounts” (the quantity and labels for revenue and expense lines)
Where you’ll organize those accounts on the financials
How you’ll record each transaction within those accounts
Before we get to any financial analysis tools and exercises, you’ll need a better understanding of the mechanics “behind” the numbers.
At the root, those mechanics start with your choice of accounting method: cash or accrual.
It sounds so basic and self explanatory that it’s not worth discussing (any accountant will tell you to use accrual accounting, and I agree), but there are some nuances and misconceptions that will help us improve our financial management…
