Cash vs Accrual Accounting

Accounting, Australian Taxation Office, Finance, Starting a Business, Taxation, Xero

Cash vs Accrual Accounting: What’s the Difference?

When it comes to recording your business’s income and expenses, there are two main accounting methods: cash basis and accrual basis. Both have their benefits—it just depends on what works best for your business. Let’s break it down:

Cash Basis Accounting

  • Income is recorded when cash is received
  • Expenses are recorded when they’re paid

This method is simple and easy to manage—great for small businesses and sole traders who want a clear snapshot of their cash flow.

Example: You invoice a client in June, but they pay you in July. With cash basis, you record the income in July, when the money actually hits your account.

Accrual Basis Accounting

  • Income is recorded when it’s earned (even if not yet paid)
  • Expenses are recorded when they’re incurred (even if not yet paid)

This method gives a more accurate picture of your financial position over time, especially helpful for growing businesses or those with complex transactions.

Example: You invoice a client in June, and even if they don’t pay until July, the income is recorded in June—because that’s when you earned it.

Which Method Should You Use?

  • Cash basis is simpler and focuses on real-time cash movement.
  • Accrual basis aligns income and expenses to the period they relate to, giving a truer reflection of business performance.

Each method has implications for tax and financial reporting, so choosing the right one matters. Not sure which fits your business best?

GST methods

GST is also recorded on either a cash or accruals accounting basis. The method you use will affect you when you report your GST. Businesses with turnover less than $10million, or who use cash accounting for income tax can use either GST Cash or GST Accrual method.

Businesses with turnover greater than $10million must use the accruals method for GST.

Let’s Chat

If you’d like help understanding what method suits your business—or even changing your accounting method—I’m here to make the process easy. Reach out for tailored advice, call one of our friendly team on 07 5494 9173!