There are two methods in accounting. Cash and Accrual. Cash basis is accounting for all things when you receive payment or when you pay for expenses. Accrual method takes into account of sale or expenses when it is incurred.

For example, when you make a purchase and pay a month later, under cash method you will account for the expense in the month you actually make the payment. In an accrual method, you will account for the expense when you actually make a purchase. When you pay for a insurance for the entire year, cash method will expense it at the time of payment. Accrual method will expense it over a year.

Naturally, accrual method will give you a more precise accounting report. However, it is usually a little more sophisticated and requires more time to do the accounting. Some business will try to use accrual method on a monthly basis and some will ask the accountant to convert their books from cash method to accrual method at the end of the year.

Whichever method you use, it is important to at least understand the method you are using and the potential effect it may have on making management decisions.