The blue line represents cumulative billing and goes up only when an invoice is generated. The red line represents cumulative costs for the job, which go up steadily because the books are kept in accrual. The vertical distance between the lines represents the amount of profit (unadjusted) that exists at any point in time.
The blue line represents cumulative billing and goes up only when an invoice is generated. The red line represents cumulative costs for the job, which go up steadily because the books are kept in accrual. The vertical distance between the lines represents the amount of profit (unadjusted) that exists at any point in time.

How often has this happened to you: After what looks like a really good month, you go out and buy an expensive piece of equipment, like a truck. Then the following month is a really bad one, and you wish you hadn't.

If this situation sounds familiar, it could be that what your financial statements are telling you isn't exactly true. This is a common occurrence for contractors who use the cash accounting method. Switching to accrual (see "Accrual vs. Cash Accounting: Why Bother?," Business, 10/04) will make your financial statement more accurate by...

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