Accrual Accounting

In the start-up years, most small contractors work out of a check book. This is essentially a cash accounting system, which records expenses when checks are written to pay bills, and records income when clients’ payments are deposited. While software like QuickBooks Pro (QBP) keeps track of these transactions accurately, when used like a checkbook, the financial reports the program generates are almost always out of date. That’s because some of the money in the account will be used at the end of the month to pay for materials ordered earlier in the month. In other words, when QBP is set up like a checkbook, it doesn’t factor in “accounts payable” (AP) — bills that haven’t been paid