The Difference Between Cash Basis and Accrual Basis Accounting

One of the first decisions that you need to make when you set up a business accounting system is whether you'll be working on a cash basis or an accrual basis. Your Randwick accountant can help you decide which is best for your business - the difference is subtle, but very important to operational matters in bookkeeping and accounting. Randwick's experts in small business accounts explain how to decide here.

What Is the Difference Between Cash Basis and Accruals Basis?
You may find that you actually have a natural bias towards one method or the other - that one system 'makes sense' to you, and the other does not!

Cash basis accounting
In cash basis accounting in Randwick, you record incomings to the business when they are actually received, not when the goods or services are provided/sold. Additionally, you'll record outgoings when the bill is actually paid, not when you incur the charge.

For example, if you're using a cash basis accounting method in a landscaping business, you would record payment for a lawnmowing service when you receive the customer's cheque, not on the day that you do the job. Similarly, you would record your lawnmower repair costs when you pay the mechanic's invoice, not on the day that your mower is returned.

Accruals basis accounting
In accruals basis accounting in Randwick, you records charges and incomings as they are incurred, though you might receive payment for them at some time in the future.

In our landscaping business example, if the owner uses the accruals method of accounting in Randwick, she would record her lawnmowing job as an incoming on the day she performs it; she would also record her lawnmower repair expense on the day her machine is returned.

Which Should I Choose?
Both cash and accruals basis accounting in Randwick have their own benefits and drawbacks. In both systems, you need to be aware of the limitations in order to gain a true picture of your financial status.

Sullivans Accountants in Randwick can help you make the decision, ensuring that your future operations are as simple and natural for your business type as possible.