Cash Basis versus Accrual Basis Accounting
Virtually all big businesses use accrual accounting for their financial reporting. Accrual accounting is beneficial because of the “matching” principle. The use of accrual accounting allows revenues to be matched with corresponding expenses that are incurred in the same period (without regard for when the cash actually comes in or goes out the door.) This often allows financial statement analysis to be more meaningful (for both the company and outside analysts.)
Accrual accounting can be easily converted to cash basis accounting; in fact, most accounting programs allow you to choose to create either cash or accrual reports. But, conversely, cash accounting cannot be converted to accrual accounting without additional information.