Accounting methods

The accrual method -

• Income is recognized when the order is made, the item is delivered, or the services occur, regardless of when the money is actually received.
  
• Expenses are recognized when you receive the goods or services. You don't wait until after money is paid out.
  

The cash method -

• Income is recognized when cash/check/money is received.
  
• Expenses are recognized when they are paid out.

Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is made.