Introduction To account for profit, businesses have the option to choose between two recordkeeping methods; i.e. the accrual method and the accounting basis method. Using one method throughout the accounting period and then changing it at the end when determining profit could introduce a form of distortion and therefore produce inaccurate figures. The two methods are completely different in terms of how income and expenses are recognized and recorded. As a result, profit accounting between the two is also poles apart. In the accrual method, revenues and expenses are recorded once earned or incurred, regardless of whether or not a cash transaction has been made (Mills, Call & Drew 2000). This therefore implies that in order for the profit of a specific accounting period to be determined or measured, the revenue earned during that period must be matched with the expenses or costs incurred in attempting to earn that revenue (Anderson 2002). Cash accounting deviates from this statement in several ways. Accrual accounting and cash accounting As already mentioned, the way in which the profit for the period is accounted for explains the main difference between the two methods. During recordkeeping, a process that ultimately leads to the determination of accounting profit, the accrual accounting principle follows the revenue recognition principle and the matching principle to the letter. The revenue recognition principle must be in line with the convention of the accounting period. This convention dictates that the life of a business entity can be divided into equal periods; along with this the revenue recognition principle requires that revenues are recognized in the period in which they are earned. At the end of each period, the financial document… half of the sheet… Likewise expenses cannot be recorded until they are paid. On the other hand, to fully adhere to the matching principle, income and expenses are recorded regardless of whether a cash transaction is made or not. Works CitedAnderson, J 2002, Accrual Accounting versus Cash Based Accounting Concepts, Elsevier, Sydney. Carter, M 2008, Accounting for Small Businesses, Prantice Hall, NYCudia, C 2008, 'Application of Accrual and Cash Accounting: Implications for Small and Medium Businesses in Metro Manila', DLSU Business & Economic Review, vol. 17, no. 1, pp. 23-40.Loren, A, Nikolai, Bazley, D, & Jones 2009, Intermediate Accounting, 11th Edition, Cengage Learning, Natorp Blvd, Mason.Mills, D, Call, W & Drew, A 2000, Accounting Foundation, 9th edition, UNSW Press, Sydney.Sayther, M & Mathieu, M 2003, The Fundamental Principles of Accounting, McGraw, NY.