Shadowing Practice: Cash vs Accrual Accounting Explained Simply | With Examples & Journal Entries - Learn English Speaking with Video

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Cash accounting or accrual accounting?

What's actually the difference?

And why can a business report revenue of $10,000 when it hasn't even received the $10,000 from its customer?

Or, even more confusingly, how can a business receive $10,000 into its bank account but not recognise that $10,000 is revenue yet?

The answer comes down to one of the most important concepts in accounting.

Timing.

Cash accounting follows when cash is actually received or paid.

Accrual accounting looks at when revenue is earned and expenses are incurred, regardless of when the related cash moves.

And once you understand that distinction, concepts such as trade receivables,

trade payables, accruals, prepayments and deferred revenue become much easier.

In this video, we're going to start from the very beginning.

We'll look at cash accounting, accrual accounting, who can use each method, the major differences between them, and then we'll work through practical examples.

We'll also look at the double entries for accruals and prepayments.

So let's start with the simplest possible difference.

Cash accounting follows the cash.

Under cash accounting, the timing is relatively straightforward.

Revenue is generally recorded when the cash is actually received, and expenses are generally recorded when they're actually paid.

Let's look at a self-employed consultant.

He completes some work for a customer in March, but the customer doesn't actually pay him until April.

Under a straightforward cash basis approach, we follow when the money is received.

So although the work was completed in March, the revenue is recognised in April, when the cash comes into the business.

So notice the timing.

Work completed in March, cash received in April, revenue recognised in April.

Under cash accounting, the completion of the work isn't what triggers the recognition of the revenue.

We move forward to April.

That's when the customer actually pays us.

and that's when the revenue is recognised under the cash basis.

So with cash accounting, the accounting period can be driven by when the money moves, rather than when the underlying work takes place.

Now let's look at the other side – expenses.

Consultant receives an electricity bill in March, but he doesn't actually pay

that bill until April under a straightforward cash basis approach we again follow the cash

so the expense is generally recognized in April

when the payment is made it's the same basic principle as our revenue example for revenue we looked at

when the cash came in for expenses we're looking at when the cash goes out.

So this gives us a very simple way to remember cash accounting.

Cash comes in, recognise the revenue.

Cash goes out, recognise the expense.

That's why cash accounting is much easier for a small business owner to understand.

We're largely following what's actually happening in the business bank account

rather than making a series of accounting adjustments to move revenue and expenses between periods.

One of the biggest advantages of cash accounting is simplicity.

We don't have to ask as many questions about which accounting period an unpaid amount belongs to.

For a straightforward transaction, we're primarily asking, when did we receive the money?

Or, when did we pay the money?

And because we're following actual cash movements, there are generally fewer of the period end adjustments that we associate with accrual accounting.

That's one reason the cash basis can be easier for eligible small unincorporated businesses to maintain.

Now let's look at accrual accounting.

Under accrual accounting, we record transactions in the accounting period in which their economic effects occur,

even if the related cash is received or paid in a different period.

So let's return to our consulting example.

After accrual accounting, revenue is recognised when it is earned, not necessarily when the cash is received.

So, if the service is completed and the revenue is earned in March, we recognise the revenue in March, even if the customer doesn't pay until April.

The cash can arrive later.

That's the fundamental difference.

The timing of cash does not necessarily determine when revenue is recognised.

Let's look at the double entry.

We've completed the service in March and earned $1,000, but the customer is going to pay us in April.

So in March we recognise the revenue.

Also, we recognise an asset called a trade receivable.

The entry is Debit Trade Receivables, $1,000 and Credit Revenue, $1,000.

Revenue increases on the credit side and the trade receivable is an asset because the customer owes the business money.

So we've recognised revenue now and cash later.

Now we move into April and the customer finally pays the $1,000.

We don't recognise another $1,000 of revenue as we've already recognised it in March.

We post debit bank and credit trade receivables $1,000.

Our bank asset increases and our receivable asset decreases because the customer no longer owes us the money.

So we're effectively converting one asset, the receivable, into another asset, cash.

There is no additional revenue.

Accrual accounting works on the expense side as well.

Imagine the business uses $600 of electricity during December.

The electricity belongs to December, but the bill won't be paid until January.

Under accrual accounting, we don't wait until January to recognise the expense.

The electricity was consumed in December, so the expense belongs to December.

At 31st December, we record debit electricity expense $600 and credit accruals.

The debit records the expense in the statement of profit or loss.

The credit creates a liability in the statement of financial position because the business has an amount to pay.

Now let's look at how we calculate an accrual.

Suppose our year-end is 31st of December.

We've used electricity during November and December but we haven't received the electricity bill yet.

Under accrual accounting, we can't simply leave the expense out because the bill hasn't arrived.

The electricity has already been used, so the expense has been incurred and must be recognised in the period it relates to.

We estimate that the electricity cost for November,

December and January will be $1,200 and assume the cost is spread evenly across those three months.

That's $400 per month.

November and December belong to this accounting year.

Two months multiplied by $400 gives us an expense of $800 for the current period.

January belongs to the next accounting period.

So if the $800 has not already been recognised,

our year-end adjustment is debit electricity expense, $800, and credit accruals, $800.

So remember, if an expense has been incurred but hasn't yet been recorded

because the bill hasn't been received we need to recognise an accrual.

Now let's look at the prepayments.

Suppose on October 1st the business pays $12,000 for 12 months of insurance.

That's $1,000 per month.

Our year end is 31st December.

October November and December insurance have actually been consumed

so the expense for this accounting period is $3,000

but we've already paid $12,000 the remaining $9,000 relates to future accounting periods that's a prepayment

and a prepayment is an asset

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if the whole $12,000 was initially charged to insurance expense our adjustment is debit prepayment $9,000

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and credit insurance expense $9,000 we're removing the future portion from the current year's expenses

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and carrying it forward as an asset let's look at deferred revenue

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when customer pays in advance a customer pays us $6,000 in advance for six months of services cash received

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and revenue earned are not necessarily the same thing under accrual accounting.

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If we haven't yet provided the services, we still owe something to the customer.

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So initially, debit bank, $6,000 and credit deferred revenue, $6,000.

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As we provide the service, the liability reduces and revenue is recognised.

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If the service is appropriately recognised evenly over six months, that's $1,000 per month.

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So each month, debit the liability, $1,000, credit revenue, $1,000.

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Now notice how different this is from cash accounting.

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The $6,000 entered the bank, but that does not mean $6,000 of revenue was earned immediately.

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There are four timing patterns worth remembering.

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Accrued expense, expense now, pay later, usually a liability.

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Pre-payment, pay now, expense later, an asset.

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Accrued revenue, earn the revenue now, receive the cash later, an asset.

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And finally, deferred revenue, receive the cash now, earn the revenue later, a liability.

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Woordenschat en spreektips bij deze les

Deze video bevat 116 zinnen en 1335 woorden om na te spreken. Het gesproken deel duurt 10:16. De spreker praat in een gelijkmatig tempo van ongeveer 130 woorden per minuut, prettig om te shadowen. Slechts 80% van de woorden hoort bij de 3.000 meest gebruikte Engelse woorden, dus de woordenschat is pittig.

Belangrijke woorden in deze video

15 woorden uit de video die het leren waard zijn, met uitspraak en betekenis:

Woord	Uitspraak	Betekenis
expense zelfstandig naamwoord	/ɪkˈspɛns/	uitgave
asset zelfstandig naamwoord	/ˈæsɛt/	activa, activum
earn werkwoord	/ɝn/	verdienen
debit zelfstandig naamwoord	/ˈdɛb.ɪt/	debet
belong werkwoord	/bɪˈlɒŋ/	thuishoren, horen
liability zelfstandig naamwoord	/laɪəˈbɪlɪti/	aansprakelijkheid
adjustment zelfstandig naamwoord	/əˈd͡ʒʌst.mənt/	aanpassen
straightforward bijvoeglijk naamwoord	/ˌstɹeɪtˈfɔː(ɹ)wə(ɹ)d/	makkelijk, eenvoudig
necessarily bijwoord	/ˌnɛs.əˈsɛɹ.ə.li/	nodig, noodzakelijk
arrive werkwoord	/əˈɹaɪv/	aankomen, arriveren
relate werkwoord	/ɹɪˈleɪt/	vertellen
consultant zelfstandig naamwoord	/kənˈsʌl.tənt/	consulent
owe werkwoord	/oʊ/	schuldig zijn
consume werkwoord	/kənˈsum/	consumeren, verbruiken
practical bijvoeglijk naamwoord	/ˈpɹæk.tɪ.kəl/	praktisch

Phrasal verbs die je zult horen

Woord	Betekenis
go out werkwoord	naar buiten gaan

Grammatica in deze video

De structuren die de spreker het meest gebruikt, met de exacte woorden uit de video:

Structuur	In de video
Present perfect have/has + voltooid deelwoord — iets uit het verleden dat nu nog telt	hasn't even received · We've completed · we've recognised
Lijdende vorm be + voltooid deelwoord — het gaat om wat er gebeurt, niet om wie het doet	is actually received · is earned · is received

Uitspraak om op te letten

De spreker gebruikt 31 samentrekkingen en verkorte vormen, zoals we're, we've, hasn't. Spreek ze kort uit, zoals je ze hoort.

De klanken “sh” en “zh”: transaction /tɹænˈzækʃən/, recognition /ˌɹɛkəɡˈnɪʃ(ə)n/, associate /əˈsoʊʃi.ət/, completion /kəmˈpliː.ʃən/, distinction /dɪˈstɪŋkʃən/
Lange woorden — let op de klemtoon: electricity /ɪˌlɛkˈtɹɪsɪti/, liability /laɪəˈbɪlɪti/, necessarily /ˌnɛs.əˈsɛɹ.ə.li/, primarily /ˈpɹaɪ.mə.ɹə.li/, recognition /ˌɹɛkəɡˈnɪʃ(ə)n/

Zo oefen je met deze video

Luister de hele video één keer zonder te spreken en noteer de woorden die je niet kent.
Spreek zin voor zin na op normale snelheid en herhaal elke zin tot je ritme gelijk is aan dat van de spreker.
Neem jezelf op en vergelijk met het origineel; let daarbij op woorden als expense, asset, earn.

Wat is de Shadowing-techniek?

Shadowing is een wetenschappelijk onderbouwde taalleermethode die oorspronkelijk is ontwikkeld voor professionele tolkentraining en gepopulariseerd door polyglot Dr. Alexander Arguelles. De methode is eenvoudig maar krachtig: je luistert naar native Engelse audio en herhaalt het onmiddellijk hardop — als een schaduw die de spreker volgt met slechts 1–2 seconden vertraging. In tegenstelling tot passief luisteren of grammaticadrills, dwingt shadowing je hersenen en mondspieren om echte spraakpatronen tegelijkertijd te verwerken en te reproduceren. Onderzoek toont aan dat het de uitspraaknauwkeurigheid, intonatie, ritme, verbonden spraak, luisterbegrip en spreekvaardigheid aanzienlijk verbetert — waardoor het een van de meest effectieve methoden is voor IELTS Speaking-voorbereiding en echte Engelse communicatie.

Shadowing-techniek: lees de volledige stap-voor-stap-gids →

Shadowing Practice: Cash vs Accrual Accounting Explained Simply | With Examples & Journal Entries - Learn English Speaking with Video

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