17 Jun Cash vs. Accrual – What does it mean to a lawyer?
Cash versus accrual, what does it mean to a lawyer?
Simply stated, cash & accrual are the two different ways to evaluate your financial reports.
When you review an Income Report on a cash basis, you will only see those transactions that have affected the cash balance in your general checking account. If a client has paid your invoice and the money has been deposited into your general checking account, it will be reflected on the Income Report. However, if you have invoiced a client and they have not yet paid you, that income would not show on the report.
If you were to review the same Income Report on an accural basis, any income you have invoiced, whether you received the paymen or not, would be shown on the report.
Most lawyers want to see their Income Reports on an accrual basis, as it aligns more closely to the work that has been performed. However, accrual based reporting often does not correlate to the cash balance in your checking account.