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 |