Cash versus Accrual Accounting

This article describes the differences between Cash accounting and Accrual accounting.  It also answers questions in relation to switching accounting methods from Cash to Accrual or vice versa and the ability to have a different tax setting for your financial reporting versus your sales tax returns. 

Cash Accounting 

WARNING: You cannot use Cash accounting with a Xero Integration.

Cash accounting is an accounting method where payment receipts are recorded during the period in which they are received, and expenses are recorded in the period in which they are actually paid. In other words, revenues and expenses are recorded when cash is received and paid, respectively.

Accrual Accounting

Accrual accounting is a financial accounting method that allows a company to record revenue before receiving payment for goods or services sold and expenses are recorded as incurred before the company has paid for them.

FAQ's

Q.Why is my payment not showing?

A.The Subscription Settings has a "Payment Information" section. If your payment is set to Credit Card with a valid number, the auto-billing run will charge the Credit Card and populate the receipt transaction. If the payment method is set to any other type, this will require our accounts team to manually receipt the payment. There could be a delay of up to 5 days for this to show.

Q.Can I change from one method to another? 

A.Yes, however it may be good idea to wait till the month-end or financial year end if possible.

To change the setting you go to:

Admin > Accounting > Accounting Preferences 

From there  you will see the option to change the financial settings to Cash/Accrual. Your Reporting will change when the settings are altered to reflect the Cash/Accrual change, your past reports will still reflect the previous selection. For any further questions on this, please talk to your accountant as they would be the best person to speak to about when this change should happen.  

If changing from Cash to Accrual, be aware that there may be some tidy up required in relation to the A/P accounts and balances as there will be a transition period as those invoices would have been created under the Cash accounting method. Your accountant will be able to advise on this and creating appropriate adjustments to counter these.  

Q. Can I be set up as accrual and have my sales tax on a cash basis? 

A.Yes, your sales tax setting are completely different to your financial settings. To set your tax setting, go to Admin > Accounting > Tax Return Setting and click on the box next to your selected Tax Return > select Edit and check/change the settings under GST Accounting Basis.

Related Articles:

• Accounting Preferences
• Business Accounting Overview
• Understanding the options for your Accounting