I was recently asked by my friends at A2X to help with a blog highlighting the importance of choosing the right accounting method for ecommerce businesses. Geoff Gualano wrote an excellent piece covering accrual accounting and why it matters.

The short version: cash basis accounting is simpler but can give you a misleading picture of your business health. Accrual accounting matches revenue and expenses to the period they occur, giving you a more accurate view of profitability. For ecommerce businesses with inventory, accrual accounting (or a modified cash approach with A2X) is almost always the better choice as you scale. Know your method. Know what it’s telling you — and what it isn’t.