My banker asked for accrual financial statements. What is she really asking for?
She wants to see the real economics of your business, not just when cash happened to move. Accrual financial statements show revenue when it’s earned and expenses when they’re incurred, regardless of when money changes hands. That timing difference matters when someone is deciding whether to lend to you.
Cash-basis statements can make a month look better or worse than it actually was. Imagine you collected $80,000 in receivables from work you did two months ago, and this month you performed $30,000 of new work that won’t be billed until next month. On a cash basis, this month looks great. On an accrual basis, the picture is more honest. You only earned $30,000 this month, and that $80,000 belonged to a prior period.
Lenders care because they’re evaluating your ability to generate consistent income and service debt. Cash-basis books can hide things they need to see. Receivables piling up. Payables you owe vendors. Work performed but not yet billed. Accrual statements put it all on the table. Many growing businesses working with our Maui accounting company keep accrual books year-round so they’re ready when these requests come in.
On an accrual balance sheet, your banker will find accounts receivable, accounts payable, prepaid expenses, deferred revenue, and work in progress. She can see whether your customers actually pay, whether you’re staying current with vendors, and whether the business is earning its keep month over month. These statements tell the story that cash-basis books often obscure.
If your books are on cash basis today, converting to accrual is not a small task. It requires identifying and recording all open receivables and payables, then maintaining that discipline every month going forward. Our Accounting: Growth tier includes accrual adjustments and a CFO-level financial review for exactly this reason. When a lender or investor asks for real numbers, the books are already ready.
If your banker is asking for accrual statements and you’re not sure where to start, schedule a consultation to talk through what it takes to get your books to that standard.
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