Why accounting method matters to a first-time founder
Your accounting method controls when income and expenses appear. It can move reported profit between periods even when the underlying deals are the same. Cash accounting may be simpler. Accrual accounting often shows performance and unpaid amounts more fully. The methods you may use, and their tax effects, depend on the country.
Examples of accounting method
A consultancy bills NZ$24,000 in December and gets paid in February. Under cash accounting, it generally records the income in February when the money arrives. Under accrual accounting, it may record the income in December when it earns it, then show the unpaid bill until February. The exact treatment depends on the rules.
Common misunderstanding
You cannot pick whichever accounting method gives the best result for each transaction. Reporting rules, tax law and the need to be consistent can limit which method you use and how you apply it. Cash accounting also does not mean you should ignore unpaid bills or future payments when running the business.
When to use it
Choose a method when you set up the accounts and review it before reporting becomes more complex. Consider legally required accounts, tax, stock, subscriptions, investor needs and what your system can handle. Changing method may need approval or one-off changes, so ask a qualified local accountant before switching.