4h • Q & A
Difference between cash and accrual?
Q: What’s the difference between cash basis and accrual basis — and how do I know which one my client should use?
A:
Cash basis records income when money is received and expenses when money is paid. It’s simple, great for freelancers, and often used by small businesses because it mirrors actual cash flow.
Accrual basis records income when it’s earned and expenses when they’re incurred — even if no money has changed hands yet. This method gives a clearer picture of financial performance, is GAAP-compliant, and is required for many larger businesses.
How to decide:
- Use cash basis when a client wants simplicity and isn’t managing inventory or large receivables/payables.
- Use accrual basis when the client needs accurate monthly financials, has inventory, or wants to understand profitability beyond cash in/out.
- Some clients benefit from cash-basis tax filing but accrual-basis management reports — totally normal and very common in bookkeeping.
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Difference between cash and accrual?
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