Understanding Cash vs. Accrual Accounting

Modified on Tue, 8 Oct at 5:42 PM

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Cash vs. Accrual Accounting
Cash vs. Accrual FAQs

This article describes the differences between cash accounting and accrual accounting. It also answers questions about switching between cash and accrual accounting methods as well as covers the ability to use different tax settings for both your financial reporting and your sales tax returns.

Cash vs. Accrual Accounting

CAUTION: If you are integrating with Xero, you cannot use cash accounting.

The following table covers the high-level differences between cash and accrual accounting.

Cash Accounting	Accrual Accounting
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 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. Example: A firm that provides services in December but receives payment in January would still record the revenue in December.

Cash vs. Accrual FAQs

The following questions and answers can help you better understand how cash and accrual accounting work within Actionstep:

Why is my payment not showing?
Can I change from one accounting method to another?
Can our accounting be set up as accrual but we have our sales tax on a cash basis?

Q. Why is my payment not showing?

A. Your firm's 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 the Actionstep accounts team to manually receipt the payment. There could be a delay of up to five days for this to show.

Q. Can I change from one accounting 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:

In Actionstep, go to Admin > Accounting > Accounting Preferences.
In Financial settings, click the Accounting method drop-down list and choose your option.
NOTES:
• For best advice on when to make the change, contact your firm's accountant.

• When this setting is changed, your reporting will also be updated to reflect the change. Past reports will still reflect the previous selection.

• 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 our accounting be set up as accrual but we have our sales tax on a cash basis?

A. Yes, your sales tax settings are completely different from your financial settings. To set your tax setting, go to Admin > Accounting > Tax return settings. Then click the box icon next to your selected tax return and choose Edit. Finally, choose your preferred option from the GST Accounting Basis drop-down list.