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When it comes to accounting, one of the first concepts to clarify is the accounting method. An accounting method determines when a transaction enters the accounts and in which period it affects the results.
It doesn't change what you do in reality, but how and when you represent it in the numbers.
If you issue an invoice today and get paid in two months, the accounting method decides whether that income counts today or in two months.
The difference is not theoretical: it changes the revenue, it changes the result.
Why different accounting methods exist
Businesses don’t all operate the same way. Some collect payments immediately, others work based on invoices, some have a few clients, others have hundreds. That’s why there isn’t a single method that works for everyone.
Some methods prioritize operational simplicity, others focus on economic accuracy. Choosing the right method is about finding the right balance between these two aspects. There is no absolute “right” method.
There is the method best suited to your business, your way of working, and the obligations you must comply with.
What changes when you choose an accounting method
Choosing an accounting method means deciding when:
- a sale becomes revenue
- a cost affects the result
- a receivable or payable appears on the balance sheet
With some methods, accounting follows the cash movements. With others, it follows the economic maturity of the transactions. This directly affects how you read the numbers and how you make decisions.
The main accounting methods
In practice, the most common approaches are three:
- The cash method (or on received payments) is the simplest: you record income and expenses only when you receive or pay money. It’s immediate, intuitive, and very cash-oriented.
- The accrual method (or on invoiced amounts) focuses instead on the economic substance: income and expenses are recorded when they accrue, even if no money has changed hands yet. It’s more accurate, but requires more work.
- The cash-accrual method (or hybrid system) is an intermediate approach. During the year, you work simply by following payments and receipts. At the end of the period, you complete the accounts with the entries needed to produce an accurate balance sheet.
How to understand which method is right for you
The choice of accounting method mainly depends on how you actually work. If you collect payments immediately and prefer simplicity, the cash method may be sufficient. If you work with invoices, deadlines, and significant receivables, you need a more complete view.
In many cases, especially for SMEs and professionals, the best solution is to start simply and complete the accounts only when necessary. This is where the hybrid approach becomes particularly effective.
Of course, tax regulations also come into play, which vary from country to country and must always be taken into account.
Accounting methods in Banana Accounting
Banana Accounting doesn’t force you to choose a method once and for all, but allows you to work flexibly and adapt accounting to your business.
You can start with a simple method, based on payments, and later add the necessary entries to get a complete view. The software doesn’t decide for you: it enables you to work effectively, whatever method you choose.
In Banana Accounting, you can manage your accounting using the various supported methods: cash, accrual, cash-accrual (hybrid system). The revenue depends on the adopted accounting method, but the basic logic remains unchanged.
Revenue can:
- follow the invoice issuance
when using the accrual method - follow the payment
when using the cash method - be aligned at the end of the period
when using the cash-accrual method
In all cases:
Revenue is determined by the transactions recorded in the income accounts.
In summary
- An accounting method helps give meaning to the numbers.
- It helps you understand when a transaction really matters and how to interpret the results.
- Understanding this concept is the first step to using accounting consciously, and not just to fulfill a requirement.