Difference in Reporting Results between Accrual basis & Cash Basis

Hi @Tut Good Day,
May I know what difference in results would obtained by method on Accrual basis & Cash basis. In other words, what is the difference in accual & cash?

Rgds & Thanks in advance

Hi @Tut Good Day,
May i know what difference in reporting results would be obtained by method on Accrual basis & Cash basis. In other words, what is the difference in accual & cash?

Rgds & Thanks in advance

Cash is cash - monies received or monies spent

Accrual records income when it becomes due eg you invoice a customer, and expenses when they are incurred eg a repair is invoiced by a supplier. The actual receipt and payment of the monies will happen at a later date.

It is generally agreed that accrual accounting give a more accurate picture of the state of a company’s finances

Read the Guide on this subject and try it out. There is no danger to your data.

Thanks @Joe91, your explanation was quite helpful
@Tut, could you kindly give me a link to the guide.

Best Rgds

The link to the Guides is at the top of the forum page.

I’m not an accountant by any stretch, but might offer this simple rule of thumb layman explanation …

Accrual method is reporting a transaction when it happens on paper, so on the date of the sale regardless of when you receive actual payment into your bank, e.g. if I dispatch goods to the customer today, and send an invoice which says it has 45 days credit terms, you would use today’s date as the transaction date.

Cash method is reporting a transaction when the cash arrives in the bank, regardless of the date of the sale on paper, e.g. if I dispatch goods to customer today, and send an invoice which say has 45 days credit terms, you would use the date the cash actually hits your bank in say 30-45 days time.

One impact accrual can have on cash flow for small business is where you record a large sale at the end of the BAS period, and this creates a large GST payable to tax dept (payable immediately), but you won’t receive the money for another month or so due to credit terms, hence the nickname it’s “A Cruel” method.

Cash method avoids this cash flow issue by ensuring the funds are there to settle any GST payable & it also makes it much easier to reconcile with your bank account statement, transaction for transaction.

I believe there is a threshold for mandatory switch from cash to accrual in Aus (maybe $2mill gross turnover), but best to confirm all this with a professional accountant.

I have entered owner equity, I have created Sales Order & Purchase Order, my business is registered for Cash Method, I cannot see an option for selecting method yet, using Ver 18.7.36

Before I create the Sales Invoice & Purchase Invoice, can I get some guidance on setup for cash method to do this right the first time
(yes looked at YouTube mostly older ver with outdated function, same with many old posts in this forum, please fresh contemporary info, thks)

Create a sales invoice and then you will get the option to select your accounting method

Thanks, I have done a copy from Sales Order to Sales Invoice but not yet saved it … I see due date “by / net” option, don’t see any Cash/Accrual Method yet (is this only visible in summary / setup after Invoice created?)

also have a supplementary question, if the terms are 50% up front & 50% upon completion/delivery, how is this best done

It would be helpful for first time users to add this in a step-through to get to the cash/accrual selection point

Only the Guides provide up to date information. Any videos that exist were not developed, posted, or sanctioned by the developer and may well have been obsolete by the time they were posted. The program advances rapidly, and 30-50 Guides are usually updated each month. Rely on third-party information at your own peril.


@Tut can you assist with this question for Cash Method.

e.g. I have already received a PO from a customer with payment terms as described.

If I issue a Sales Invoice on Monday, do I issue full amount, with the 50/50% terms mentioned in notes or is there some function which splits the invoice amount?

Assume the customer pays 50% next week, but the final 50% installment may not be for 2-3 months when custom manufactured goods are ready for shipment (using cash method).

What are the steps (Keep in mind operationally I’m advanced, but bookkeeping/accounting I’m on ‘L’ plate)

Based on the limited information you have provided, it sounds like you have a binding agreement that allows you to invoice 50% upon receipt of the purchase order. So raise a sales order in that amount. Upon completion/delivery, issue a sales invoice for the remainder. Explanatory notes might be helpful, but not required from an accounting perspective.

Regardless of whether you are using accrual or cash basis accounting, a sales invoice is issued when, under the business circumstances, you are entitled to the money. Frequently, that means you must perform first; but in this case, your agreement entitles you to be paid upon acceptance of the order. Were you using accrual basis accounting, you might receive and hold the deposit as a liability and only recognize income as it is actually earned.

The specific steps are:

  1. Raise the 50% invoice when you receive the purchase order.
  2. Receive money against that invoice when the customer pays the deposit.
  3. Raise the final 50% invoice upon delivery.
  4. Receive money against that invoice when final payment is received.