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The main difference between cash and accrual accounting is the timing of when revenue and expenses are recognised in the books.

Cash accounting records revenue when money is received and expenses when money is paid out.

Accrual accounting records revenue when it is earned and expenses when they are incurred.

Small charities can use either cash or accrual accounting. Medium and large charities must use accrual accounting.

See our guidance on cash and accrual accounting.