Cash runs on a different clock

Two clocks, one repair

Morrow Bikes finishes a $900 repair on March 28. The customer collects the bike, says thanks, and pays the invoice on April 9. The mechanics who did the work earned $500 in March and get paid on April 3. Ask "how did March go?" and you get two honest answers, depending on which clock you read.

The cash clock records money when it moves. The accrual clock records the event when it happens: revenue when the work is done, expenses when the resources are used up. Payment can come before, at the same time, or after. This is a Scorecard (income statement) lesson read beside the Cash Ledger (cash flow statement), and its reflex is the second question: which clock?

March on the accrual clock

Assume the repair satisfies its obligation to the customer in March. March revenue is $900 and a receivable of $900 appears on the Snapshot (balance sheet). In April the customer pays: cash rises by 900, the receivable falls by 900, and the April collection is not a second sale.

The wages work the same way in reverse. March gets $500 of wage expense and a $500 wages payable. In April the payroll run reduces cash and the payable by 500 each. March profit from these two items is 900 − 500 = $400, and not one dollar has moved.

Public companies report on the accrual clock under US GAAP, and under IFRS too. Tax is a separate rulebook: whether a small business may use the cash method on its tax return is a tax question, not a financial-reporting one.

Why bother with two clocks

Accrual matches the work done with the resources it used, which is what tells you whether March was a good month. A cash-only view shows an idle March and a busy April, which is not what happened in the workshop. But accrual earnings rest on estimates and do not prove collection. Analysts read profit and cash together, every time.