Cash basis accounting records revenue when money is received and expenses when money is paid. It tracks cash flow timing rather than when work was done or goods were delivered.
Accrual basis accounting records revenue when it is earned and expenses when they are incurred, even if cash has not yet changed hands. That matching approach is what GAAP and IFRS financial statements generally require.
In practice, cash accounting is simpler for small businesses with straightforward payment cycles, while accrual accounting gives a clearer picture of performance when you have credit sales, deferred revenue, inventory, or outside investors.
Source: Cash vs. Accrual Accounting: A Business Guide — Stripe