Cash vs. Accrual Accounting for Small Businesses
Understand the practical difference between cash and accrual reports, why unpaid invoices and bills matter, and when to ask a tax professional for guidance.
This resource is educational and is not tax advice. Accounting method decisions can depend on business type, size, inventory, and tax professional guidance.
Short answer
Cash basis generally shows income and expenses when money moves. Accrual basis generally shows income when earned and expenses when incurred, so unpaid invoices and unpaid bills can appear before cash changes hands.
Checklist
- Know whether each report is cash or accrual basis.
- Review unpaid customer invoices.
- Review unpaid vendor bills.
- Compare profit to actual cash movement.
- Ask a tax professional which method fits your business and filing situation.
Common mistakes
- Assuming profit always equals cash.
- Ignoring unpaid invoices on accrual reports.
- Ignoring unpaid bills that have already been incurred.
- Changing accounting method assumptions without tax guidance.
Examples for service businesses
- A contractor may invoice before final payment, so accrual reports can show income before cash arrives.
- A landscaper may receive vendor bills before they are paid, which can change accrual profit.
- A service business with customer deposits needs a clean workflow so reports tell the right story.
Why reports may look different
QuickBooks can show reports on a cash or accrual basis. The same business can look different depending on whether unpaid invoices and bills are included.
Request a Bookkeeping Review
If your reports do not match what you see in the bank, request a bookkeeping review and we can help explain what is happening.
Request a Bookkeeping ReviewRelated resources
Related support from Sabillon Advisory
If this guide describes the bookkeeping problem you are dealing with, these services are the most relevant next step.