Most individuals track their personal finances on a cash basis. This means that income is recorded when it’s received and expenses are recorded when they are paid. Most businesses, however, operate on an accrual basis. Without regard to when cash is paid or received, the expenses are recorded when they are incurred and income is recorded when it is billed.

For example, suppose a business sold fifty boxes to a customer on account (a line of credit). In an accrual-based system of accounting, the organization would record the income at the time of the sale. In a cash basis system, the revenue would not be recorded until the cash is received.

Another example might be an expense, such as property tax, that is paid once or twice a year. To record this expense against the revenue generated by the property, the total property expense is spread across the year and accrued each period by entering an adjusting entry that would debit (increase) property tax expense and credit (increase) your accounts payable account. When the property taxes are actually paid, cash is credited (decreased) and accounts payable is debited (decreased).

In the case of a direct expense like office supplies, the purchase would increase the expense account for office supplies and decrease cash or increase accounts payable. In a cash-based accounting system the expense would only be recorded when the supplies are paid for; in accrual they are expensed at the moment the invoice is received, regardless of whether or not it is paid for at that time.

Denali is designed primarily for businesses operating on an accrual-based accounting system.