Cash basis and accrual basis are accounting methods that determine when and how you report income and expenses for tax purposes.

The IRS wants you to use the same method each year when reporting income. You should talk to your accountant about which is most appropriate for your business.

What is cash basis?

When you use cash basis as the accounting method, income is reported when you receive payments, instead of when you bill a client. Expenses are reported when you pay bills.

It’s the most natural to use; most personal checking accounts are managed this way.

What is accrual basis?

With accrual basis as the accounting method, income is reported as soon as you bill a client (instead of when you receive the money) and expenses are reported when you receive a bill.

Accrual basis is more accurate than cash basis reporting. It also may let you manage your business better by showing you trends in income and expenses well in advance of the actual payments you make or receive.

Switching between cash and accrual

You can see summary reports on a cash or accrual basis at any time. Click Customize… on a report, and change the method.

If you don’t see the options in the Customize Report window, cash and accrual accounting methods don’t apply to that report.