Accrual accounting is an accounting method where revenue and expenses are recorded when they are earned or incurred, not when cash is exchanged. For ecommerce businesses, this means that sales are recorded when the order is placed, and expenses are recognized when the obligation is incurred, regardless of when the cash is received or paid.
Accrual accounting provides a more accurate picture of a business’s financial health, especially for ecommerce companies with large amounts of inventory or customers who pay on credit. By tracking income and expenses as they happen, accrual accounting allows for better financial forecasting and decision-making. However, it can be more complex to manage, especially for small businesses, and may require more advanced accounting systems. As ecommerce businesses grow, accrual accounting becomes the type of ecommerce accounting which is essential for managing profitability, cash flow, and long-term success.
Read our in-depth article on accrual accounting.