Cash and accrual bookkeeping differ in when activity is recognized. Cash generally follows receipts and payments; accrual follows earning and incurrence under the applicable rules. These are simplified explanations for reading reports. Your accountant and tax adviser determine the appropriate basis and any requirements for changing a tax method.
Get help with your monthly booksPractical records guidance · Updated October 16, 2026 · Fictional examples
A customer invoice, a completed service and a bank receipt can occur in different months. Under accrual reporting, outstanding invoices and bills can affect revenue, expenses and balances even before money moves. Under cash reporting, the timing of receipts and payments has a different effect.
Do not compare one month’s cash report with another month’s accrual report without identifying the basis. Software report settings also do not authorize a tax-method election. Inventory, advance payments and special rules can change the simple examples.
Illustrative example · Fictional data
Illustrative example: $2,000 is earned and invoiced in March, then collected in April. In a simplified accrual report, March shows the revenue and receivable; April shows collection. In a simplified cash report, the receipt affects April. Neither report turns one service into two sales.
No. The effect depends on earning, incurrence and payment timing. There is no universal direction of difference.
No. Report settings and tax-method requirements are different matters. Ask the tax professional about the applicable procedures.
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