Glossary · Bookkeeping & QuickBooks term
Accrual vs. cash basis accounting
Two ways to time when transactions hit your books: cash basis records money when it actually moves; accrual records it when it’s earned or incurred — and the two can tell very different stories.
In plain terms
What accrual vs. cash basis accounting means.
Cash basis accounting records income when money is received and expenses when money is paid. Accrual basis records income when it is earned (you delivered the work or shipped the product) and expenses when they are incurred (you received the bill), regardless of when cash actually changes hands.
The same business, on the same transactions, can show a very different profit for a month depending on which basis it uses — because the two methods disagree about when a transaction belongs to.
Why it matters which one you’re on.
Cash basis is simpler and mirrors your bank account, which is why many small businesses start there. Accrual gives a truer picture of profitability and is required for some businesses — generally those carrying inventory or above the IRS gross-receipts threshold — and is the basis investors, lenders, and GAAP expect.
QuickBooks can report on either basis from the same data, and switching the report basis changes the numbers without changing a single transaction. Getting the basis right — and reading reports on the correct one — is part of setup and a frequent cleanup correction. The choice and any change in method is a tax matter your CPA or EA confirms.
Put it to work
Not sure which basis your reports are on?
A Certified ProAdvisor confirms how your books are set up and whether you’re reading the right basis for the decision in front of you. Tax-method changes are confirmed with your CPA or EA.