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Cash versus Accrual accounting

Bookkeep's technology is built around Generally Accepted Accounting Principles (GAAP), a set of guidelines put forth by the Financial Accounting Standards Board (FASB). We maintain this GAAP standard by embedding accrual accounting practices within our automation software.

Accrual Accounting

Under accrual accounting, revenue is recorded when it is earned and expenses are recorded when they are paid. This helps bookkeepers create an accurate financial snapshot of the business. Accrual accounting practices are preferred by business owners who wish to better manage debts, taxes, future earnings, and net revenue in real time.

Balanced journal entry

Cash Basis Accounting

The alternative accounting practice (which doesn't align with GAAP standards) is cash basis accounting. In this approach, revenue and expenses are simply recorded at the time when cash is received or paid out. Although this approach is the easier to manage of the two methods, it can distort financial results because it tracks transactions only when money changes hands.

One of Bookkeep's core principles is to help businesses make sense of their deposits. For instance, in accrual accounting, a deposit isn't classified as revenue. The proper formula for a deposit is as follows:

(+) Sales revenue 
(+) Sales tax
(+) Shipping income
(+) Gift card liability
(-) Processing fees
(-) Loan withholdings
= Deposit to your bank

For more information on how Bookkeep can help you make more informed financial decisions, please visit our website and start a free trial today.