One of the big differences between how most people start out with accounting, and how professionals and big companies do it, lies in the distinction between cash basis and accrual basis accounting. Cash basis accounting is the simple, obvious, kind: we record transactions as they happen, and our ledger account balances reflect how much money is really present (or owed) right now in various accounts.
It might seem at first like this is the only possible or sensible way of tracking things, but accrual basis methods also have an intuitive appeal of their own, despite being rather different.
Consider, for example, a scenario where you complete some contract work but haven’t been paid yet; or are at a job a week before your latest pay-cheque is due. Naturally, you’d consider that you’re owed your wages, even if you don’t have anything written down in your cash basis accounting ledger. Or, to flip it around, if you receive a bill for this past month’s utilities, you know you owe that money even if it too isn’t in your ledger yet. Accrual basis accounting just means writing down these obligations at the time they’re incurred, rather than at the time they’re paid.