Let's first start with some basic defintions.

According to BusinessDictionary.com , cash basis accounting records cash when it is received and expenses are recorded when cash is paid out. Accrual basis accounting, on the other hand, records revenues when they are earned and expenses when they are incurred. The accrual method is generally regarded as the standard because it more accurately represents the expense and the revenue which pays for it.

However, very small firms with no paid staff may find it easier to use the cash basis and you should check with your accountant or auditor.