What Is Accrual Accounting for Small Businesses?


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Has your business reached the point where you’re ready to hire more employees or expand into new customer markets? As your business becomes more complex, it may be time to revisit whether accrual accounting will be more effective for your financial and tax reporting.

In this post, we’ll go over what you need to know about the accrual method of accounting, including its benefits, how it compares to cash accounting, and if it’s right for your business. 

The differences between cash vs. accrual accounting

Though people commonly confuse accrual accounting with cash accounting, there are some stark differences to know before choosing which is right for your business. 

Accrual-based accounting is a popular method for big companies, as it uses the double-entry accounting method, which is more accurate and conforms with the generally accepted accounting principles (GAAP).

In accrual accounting, you record income and expenses as you earn or incur them. This means you add income to your accounting journal when you complete a service or deliver goods and expenses when you receive an invoice for the goods and services.

Cash accounting, on the other hand, records income and expenses when you receive or deliver payment for goods and services. Most small businesses prefer the cash method because it’s simpler.

Here’s how they work: Let’s say your business provided a service to a customer in June, but they’ll only pay you in July. With accrual accounting, you’d record income for June, which is when you performed the service. But with cash accounting, you’d record income in July, when you received the payment. 

Most businesses can choose between cash and accrual accounting methods. However, if an inventory is necessary to account for your income or your company’s income is over $25 million, the IRS will require you to use the accrual method.

How accrual accounting works for different adjusting entries

When using accrual accounting, you’ll have different adjusting entries to add to the balance sheet and income statement

These entries divide into two categories:

  • Accruals: Revenue and expenses you haven’t yet received or paid, but you already provided the good or service.  
  • Deferrals: Revenue and expenses you received or paid before providing or receiving the goods and services. 

Let’s take a look at these types of adjusting entries and how you can use them in accrual accounting.

Accrued revenue

Accrued revenue is any income you expect to receive for any good or service you provided. It essentially means a customer owes you money for the transaction. 

For example, if you provided a consulting service for $100 in January but you expect the customer to pay in February, you’ll have an accrued revenue of $100 in January. 

In this case, you’d debit your accounts receivable and credit revenue. Here’s how you’d record this in January:

Accrued revenue

Then, in February, when you receive the payment, you’ll credit accounts receivable, which means receivables go down, and debits cash, which will go up.

Accounts receivable

Deferred revenue

Differently than accrued revenue, deferred revenues happen when a customer has paid for a good or service you haven’t yet provided. Meaning you owe the customer what they paid for. 

This is common when customers pay for a subscription or have recurring payments, like a phone bill. For example, let’s say a customer paid $100 for your consulting services in January, but you’ll only be providing the service in February. 

In this case, you would debit your cash account since it increased, and you’d credit your deferred revenue, which is a liability account.When you provide the consulting service in February, you’ll debit your deferred revenue, decreasing your liability. Then, you’ll credit revenue.

Accrued expenses

Accrued expenses are similar to accrued revenues in the sense that you were recording when the transaction happened, and not when there’s a payment. But in this case, your business is the one that has to pay. 

This happens when you receive a good or service, but the provider expects you to pay at a later date. For example, let’s say you received merchandise for your business in March and received an invoice of $500 with payment due in April. 

In accrual accounting, you’d record when you received the merchandise. In March, you’d debit $500 for expenses and credit accounts payable since you still have to pay for it. Once you pay for the merchandise in April, you’ll debit accounts payable and credit cash.

Prepaid expenses

Prepaid expenses are the opposite of accrued expenses. This means you already paid for the goods or services that you’re yet to receive. In this case, someone still owes you the goods and services you paid for. 

For example, if you paid $500 for merchandise from your supplier in March, but they’ll only deliver them in April, you’ll have to debit the prepaid expense account and credit your cash account. After you receive the merchandise in April, you’ll debit your expense account and credit prepaid expense.

Advantages of accrual accounting

Recording cash transactions based on when you complete services, deliver products, and incur expenses is also beneficial to your business.

Here are the main advantages typically associated with accrual accounting.

  • Provides a more accurate view of your business’s performance: Since you can measure profitability and business activity during a specific month or year. 
  • Makes it easier to track revenue if you sell on credit: Since you record the transactions when they happen instead of after payment. 
  • Can defer your tax liability: Since you can delay paying taxes on a certain income if a customer pays the year after it was delivered. 

Still, it’s important to review the IRS guidelines on how to report an advance payment for services using the accrual accounting method.

Disadvantages of accrual accounting

Whereas accrual accounting’s strengths lie in accurately showing business profitability and representing long-term revenues and expenses, it has a few drawbacks as well.

Here are some pitfalls of accrual accounting:

  • Does a poor job of tracking cash flowsSince your bank account may show a smaller balance than your income statement if customers haven’t paid what they owe you.
  • Requires more bookkeeping and staff resources: Since you need to track cash flow separately to cover your bills which can be more complicated and expensive to implement.

Due to the added complexity and paperwork required under the accrual method of accounting, small business owners—particularly when starting a business—tend to view it as a less ideal option than the cash accounting method.

Streamline your accounting and save time

Accrual accounting provides a better picture of your overall financial position, and many companies consider it to be the standard and more accurate accounting method. But it can also be too complicated and expensive for small business owners. 

One way to offset the people and time resources required under accrual accounting is to invest in accounting software that does the hard work for you.

This article originally appeared on the QuickBooks Resource Center and was syndicated by MediaFeed.org.

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18 loans for Hispanic-owned businesses

18 loans for Hispanic-owned businesses

There are nearly 5 million Hispanic-owned businesses in the U.S., making this the fastest-growing segment of U.S. small businesses, according to the U.S. Small Business Administration (SBA). Yet, despite these big numbers, Hispanic and Latinx business owners frequently face challenges accessing capital and, as a result, often can’t successfully scale their businesses.

Fortunately, a number of organizations and government agencies in the U.S. are stepping up to address this unmet need, offering loans, grants, and other financing options to Hispanic and other minority entrepreneurs. These minority business loans may have lower interest rates and be easier to qualify for than some traditional loans. Here are 18 financing options that are worth checking out.

(Learn more: Personal Loan Calculator


To qualify as a Hispanic-owned business, more than 50% of the company must be owned by people of Mexican, Puerto Rican, Cuban, or other Hispanic origin. Currently, nearly one in four businesses are Hispanic-owned.


minority business loan is a small business loan designed to provide financing options for underserved communities. While minorities are free to apply for any business loan, minority business loans may offer more competitive rates and have less stringent qualification requirements. 

Groups that are considered minorities in the U.S. include African Americans, Asian Americans, Hispanic Americans, and Native Americans. Women are also considered minorities for many types of loans, as well.


The following lenders offer different types of small business loans to Hispanic and minority entrepreneurs and were chosen based on our analysis of search volume.

1. Accion

Accion is a nonprofit financial institution that invests in underserved communities and offers low-cost lending opportunities to Hispanic- and minority-owned businesses. The Accion Opportunity Fund provides loan amounts from $5,000 to $100,000, and is quick and easy to apply for online. 

Accion offers two types of small business loans — the Southern Opportunity and Resilience (SOAR) Fund and the Small Business Progress Loan. SOAR is geared toward those in the south and southeast who experienced economic hardship from the COVID-19 pandemic and have been in business since September 2019 or earlier. The Small Business Progress Loan, on the other hand, is open to all minority-owned businesses and women entrepreneurs, and is partnered with American Express.

Accion also offers online resources, events, and networking opportunities (in Spanish and English) to help minority business owners learn and grow their companies.

(Learn more at: Home Affordability Calculator

Delmaine Donson/istockphoto

The Community Development Financial Institutions Fund (CDFI Fund), which is part of the U.S. Treasury, gives funds to companies and organizations that help underserved people and communities. Minority business owners can reach out to local banks and nonprofit groups that have received CDFI funds to discuss and apply for low-cost business loans.


The owners of Camino Financial were inspired to start their lending business in order to help people like their mother, who lost her Mexican restaurant business when they were children. To that end, they offer simple and affordable loans to small businesses who find it difficult to borrow through banks. They offer bad credit loans, secured and unsecured loans, microloans, and working capital loans up to $35,000. To qualify, your business must have been in operation for at least nine months and generate annual sales of $30,000 or $2,500 a month.


The U.S. Small Business Administration (SBA) offers several financing programs that can help minority-owned businesses get access to the funding they need. Here are two programs you may want to check out to find a Hispanic small business loan:


The SBA microloan program is administered by an intermediary network of nonprofit community-based lenders, rather than traditional banks. Through these lenders, the SBA aims to reach lower-income communities and minority-owned businesses that are often overlooked by traditional lenders. These loans come with low interest rates, six-year terms. and loan amounts up to $50,000.

Community Advantage Loans

The SBA’s Community Advantage loan program provides up to $350,000 in capital and is specifically designed to meet the needs of business owners in underserved communities. To qualify for an SBA community advantage loan, business owners need to have good credit and a strong business plan. However, the business’s balance sheet and amount of collateral will not affect eligibility.


By offering crowdfunded loans with 0% interest, nonprofit Kiva is working to lift barriers to capital often faced by entrepreneurs from underserved communities. To apply, you need to market your Hispanic business to the community of 1.9 million individual lenders. These lenders can then choose to lend your company as much as $15,000 and you’ll have up to three years to repay them.


CDC Small Business Finance is a nonprofit whose mission is to provide access to affordable and responsible capital to underserved entrepreneurs, including minority, veteran, and hispanic business owners. CDC offers loan amounts of $20,000 to $350,000 with five- to 10-year terms. They also offer SBA 504 commercial real estate loans of $250,000 to $40 million.If you are looking for advice to rebuild your credit, develop your business strategy, or manage financial reports, you’ll appreciate having access to small business advisors through CDC.


Grameen America strives to achieve racial and gender equity by providing microloans of up to $2,000 to female and minority business owners. As part of their program, borrowers can open free savings accounts with commercial banks and build personal credit as they pay off their microloans. Grameen also offers training and support to women who want to start businesses and rise out of poverty.


The Latino Economic Development Center (LEDC) offers Hispanic small business loans of $500 to $250,000 that can be used to purchase equipment, expand a business, hire staff, or purchase inventory. The three types of loans offered by the LEDC are as follows:

  • LEDC Growth Loan: Loan amounts up to $250,000 for established small businesses that have been in operation for a minimum of two years.
  • LEDC Startup Loan: Loan amounts up to $20,000 for new businesses with less than two years of business history.
  • LEDC Seed Loan: Loan amounts up to $5,000 for businesses with less than one year of experience and with plans to launch a company within three months of funding.

LEDC also offers free business advice and credit-building services, as well as a directory of latino-owned small businesses.


The National Association of Latino and Community Asset Builders (NALCAB) provides funding to a network of over 200 nonprofit organizations that serve diverse Latino communities throughout the U.S. With NALCAB support, these partner organizations offer Hispanic loans, grants, professional training, and support. 

FG Trade/istockphoto

Hispanic small business loans aren’t the only way for your business to get funding. There are also minority business grants that can provide capital that you don’t have to repay. These grants are offered by federal and local government agencies, corporations, and nonprofits.

10. Grants.gov

Grants.gov is the largest database of federal grant opportunities. While most grants are not specifically targeted to Hispanic small business owners, awards are available for all types of entrepreneurs, especially those focused on healthcare, U.S. defense, and environmental protection.


digitalundivided’s BREAKTHROUGH Program (powered by JPMorgan Chase’s Advancing Black Pathways) offers $5,000 grants to Black and Hispanic women in the Dallas, Texas area. digitalundivided also provides training and resources to help businesses understand their customers, find financing, and choose the right business model.


The National Association of the Self-Employed (NASE) works to provide resources for all self-employed individuals, including Hispanic business owners. They offer Growth Grants of $4,000, which can be used for a variety of business expenses, including marketing, advertising, hiring employees, and expanding facilities.

Besides access to grants, becoming a NASE member allows you to connect with experts who can advise you on subjects like finance, healthcare, strategy, law, and marketing. NASE membership also gives you access to discounts on healthcare, software, tax filing, and business travel.


Hispanic businesses located in rural areas that have fewer than 50 employees and less than $1 million in gross revenue may want to consider applying for a Rural Development Grant from the USDA. Grants vary in size and can be used for a variety of projects that aid business development in rural areas, including training, technical assistance, acquisition or development of land, building construction or renovations, equipment purchases, and pollution control.


The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs are government grants from five different federal government agencies. These competitive grants are focused around tech and science and offer up to $1 million in capital (divided into two phases) to qualified small businesses.


You may be able to find funding for your Hispanic small business through Candid.org’s Foundation Directory Online, which contains information on over 240,000 grantmakers in the U.S. Access to the directory requires buying a monthly subscription, but you can cancel at any time.


Comcast RISE, which stands for Representation, Investment, Strength, and Empowerment, is a grant designed for businesses that were hit hardest by COVID-19. The grant is worth $5,000 and is given to small business owners hoping to expand and recover from the effects of the pandemic. Awards go to those looking to uplift their communities with a focus on diversity, inclusion, and community investment.


The Entrepreneurial Spirit Fund by SIA Scotch Whiskey awards $10,000 in grants to small businesses owned by people of color in the food and beverage industry. Created by Hispanic entrepreneur Carin Luna-Ostaseskis, one of SIA’s goals is to provide funding, mentorship, and community to small businesses.


If you’re a woman entrepreneur, consider applying for the Amber Grant, named after Amber Wigdahl, who passed at the age of 19 and never got to fulfill her business dreams. Each month, at least $30,000 is given in Amber Grant money. Applying takes just a few minutes and winners are announced by the 23rd of the following month.


In addition to the grants and loans, there are organizations that can provide technical assistance, training, workshops, and networking opportunities to Hispanic businesses. Below are some you may want to check out.


With a focus on assisting Black female and Latinx business owners, digitalundivided offers virtual training and a fellowship program for entrepreneurs. It also offers a pre-accelerator program for tech-enabled startup founders who have already begun to build their startup, are pre-revenue, and need assistance in developing their business model, marketing, and strategy.

Minority Business Development Agency

The Minority Business Development Agency is an advocate for Hispanic and other minority-owned businesses, and offers research, conferences, and resources to help entrepreneurs. Its Enterprising Women of Color Initiative is aimed to help minority women succeed in business through various offerings.


The United States Hispanic Chamber of Commerce actively promotes the economic growth, development, and interests of Hispanic-owned businesses. Members have access to events and business resources to support them in their growth. In addition, members get listed in the Chamber’s online Hispanic business directory.


SCORE is a national organization that connects business owners to free mentors to help them learn and grow their companies. SCORE also offers free workshops and a robust online database of useful business content.


Looking for — and applying for — a Hispanic business loan can feel like an overwhelming task. Here are some ways to simplify the process.

Consider Your Options

Before applying for a small business loan, it’s a good idea to take a look at your credit profile and business financials, as this will give you an idea of what type of loan you might qualify for. If you have excellent credit, solid revenue, and have been in business at least two years, you may be able to qualify for a long-term, low interest loan from a bank or SBA lender. If not, you may want to look into financing offered by lenders and grantmakers listed above, as well as online lenders (who often have less strict qualification requirements for loans).

Determine How Much Money You Need

To figure out how much of a loan you need to start or grow your Hispanic business, consider how you would like to use the funds from a loan, then create a detailed budget for your project, adding in some padding to account for unexpected expenses. 

Consider the Best Location for Your Business

If you haven’t yet launched your business, consider what might be the best environment for doing so. You may want to explore the best metros for minority businesses, since they may have established communities of hispanic business owners and resources to help you.

Gather All Your Paperwork

Whatever type of funding you decide to pursue, you will likely need to supply an extensive amount of information about your business in order to apply. This often includes:

  • Business EIN
  • Industry
  • Entity type
  • Business license and permits
  • Annual business revenue and profit
  • Bank account statements (personal and business)
  • Personal and business tax returns
  • Balance sheet
  • Proof of collateral
  • Accounts receivable and payable reports
  • Existing debt
  • Commercial lease
  • Purpose of the loan/grant
  • Business plan

This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

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