What accounting method should I use?

A Contractor University Member recently utilized the Ask-The-Expert Q&A feature within the member dashboard by submitting the following question and received the response below.

Contractor Question:

“What accounting method should I use to improve my reporting? Can you explain the benefits and downfalls of cash and accrual accounting?”

Contractor University Expert Response:

“To clarify, 91% of contractors use accrual accounting, which records transactions when they occur, not when payment is received. This method provides a more accurate financial picture but doesn’t always reflect available cash. In contrast, cash accounting only records transactions when money is collected, making it simpler but less comprehensive.

It’s important to also track your cash flow statement, especially if you’re using accrual accounting. Many businesses overlook this, which can lead to cash shortages despite showing profits on the income statement.”

Contractor University members can click here to log in to their member dashboard and submit a question through the Ask the Expert portal.