You finish a project in March and invoice A$20,000. The client pays in May. Cash accounting records the income in May, when money moved. Accrual accounting records it in March, when you earned it, and carries the unpaid A$20,000 as an asset in between.
That's the entire distinction. Here's what it does to three months of a consulting business that also pays A$6,000 monthly in salaries and prepaid A$12,000 of annual insurance in March:
| March | April | May | |
|---|---|---|---|
| Cash basis profit | (18,000) | (6,000) | 14,000 |
| Accrual basis profit | 13,000 | (7,000) | (7,000) |
Example data: one A$20,000 invoice (March work, May payment), A$6,000 monthly salaries, A$12,000 annual insurance paid in March and spread A$1,000/month on accrual.
Same business, same events. Cash basis says March was a disaster and May was excellent. Accrual says March was the good month — which is true, since March is when the work existed. Every number founders want to track — margin trends, month-on-month comparisons, forecasts — depends on the accrual version, because it matches income to the period that earned it and costs to the period that consumed them.
What cash basis still does well
It's simple, cheap to maintain, and tracks the one thing it tracks honestly: money in, money out. A very small business with immediate payment, no inventory and no contracts beyond a month loses little by using it. Cash basis can also defer tax where income is received after the work (you aren't taxed on invoices nobody has paid yet), which is why the tax rules below exist at all.
Signs you've outgrown it
- You invoice on terms, so revenue and cash land in different months.
- You hold inventory or run multi-month projects.
- Annual bills distort whichever month paid them.
- A lender or investor has asked for "proper" financials — they mean accrual.
- Profit swings month to month in ways nobody can explain.
Two of these is enough.
The tax rules, country by country
Bookkeeping method and tax filing basis are separate decisions, and the filing rules differ by country. As at late 2026, in outline:
- Australia: businesses with aggregated turnover under A$10 million may account for GST on a cash basis; income tax for most companies follows ordinary (accrual) principles.
- New Zealand: the GST payments (cash) basis is available up to NZ$2 million of taxable supplies; above that, invoice basis applies.
- United States: the cash method is available to businesses under the gross-receipts test — around US$30 million average annual receipts, indexed — with exceptions; many smaller companies still choose accrual for investor reporting.
- Canada: accrual is required for tax for most businesses, with cash-basis elections limited to farming and fishing.
Treat those as orientation, not advice — thresholds move and entity specifics matter. The practical pattern we run for clients: accrual books always, with the tax filing basis chosen jurisdiction by jurisdiction.
What switching involves
A one-time project: opening balances built for receivables, payables, prepayments and accruals; prior periods restated so comparisons hold; done cleanly at a financial-year boundary. We fold it into onboarding when a client arrives on cash books, which is often. Expect days of work, not months.
And keep reading a cash summary afterwards. Profit is an opinion about periods; cash is a fact about survival. A good monthly report shows both on the same page.