Understanding Cash vs. Accrual Accounting

Cash basis accounting recognizes income and expenses when they actually hit your bank or credit card accounts.
Accrual basis accounting, on the other hand, records revenue when it's earned and expenses when they’re incurred—regardless of when the money moves.

In the U.S., it’s common for LLCs and small businesses to operate and file taxes using the cash method. In my experience as a bookkeeper, it’s relatively rare to see accrual-based financials outside of not-for-profit organizations.

That said, accrual accounting is considered the “correct” method under GAAP (Generally Accepted Accounting Principles). But it can pose challenges for smaller businesses managing cash flow. For example, if you issue a large invoice with sales tax in April, that tax will likely be due to the authorities in May—even if the invoice hasn’t been paid yet. Essentially, your business is fronting the tax until the client pays.

In the Netherlands, accrual accounting is the standard under Dutch GAAP. While smaller entities may be granted some flexibility, financial reporting is still expected to follow accrual principles.

To keep your books accurate and complete year-round:

• Always issue invoices for services you provide.
• Always request formal bills from your vendors.
• Encourage timely invoicing and billing on both sides.

For ongoing projects with multiple deliverables, it’s best to bill in phases—as each portion is completed—rather than sending one large invoice upfront. Similarly, any project-related expenses should be recorded in the year they occur.

With consistent, timely billing, your financials will naturally fall into place.