Should startups use cash or accrual accounting?

With cash-based accounting, revenue is only recorded when payment is received, and expenses are recorded when they are paid. In contrast, accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of whether or not payments have been made or received. Burkland recommends accrual accounting for startups because it generates a more accurate long-term financial picture, is required for GAAP, and is what prospective investors and lenders expect to see.