Key takeaways
What this article covers, in order:
- What's the difference, with real numbers?
- Where the gap gets bigger
- Pros and cons, honestly
- So which should you use?
- Common mixed-up habits
- How HelloBooks helps
Cash bookkeeping records income when the money lands and expenses when the money leaves. Accrual bookkeeping records income when you earn it (usually when you invoice) and expenses when you incur them (usually when the bill arrives), whatever the bank is doing. For running the business day to day, most small businesses get the clearest picture by keeping invoices and bills in their books and looking at both views. Here's what cash vs accrual bookkeeping means with real numbers.
One thing first: this post is about how you keep and read your books for management. The basis your accountant uses for income tax, and the one used for GST, are separate decisions they'll make with you. We're not covering those here.
What's the difference, with real numbers?
Jess runs a two-person graphic design studio in Brisbane. Here's what happened in Sep 2026:
- She invoiced clients $12,000 for Sep 2026 work. Clients paid $8,000 of that before 30 Sep 2026.
- A client also paid an Aug 2026 invoice of $3,000 in Sep 2026.
- She received $4,200 of supplier bills for Sep 2026 (a freelance illustrator and some printing). She paid $2,600 of them in Sep 2026.
- She also paid a $900 bill left over from Aug 2026.
All figures exclude GST to keep it simple.
| Cash view | Accrual view | |
|---|---|---|
| Income | $11,000 (cash received: $8,000 + $3,000) | $12,000 (Sep 2026 invoices) |
| Expenses | $3,500 (cash paid: $2,600 + $900) | $4,200 (Sep 2026 bills) |
| Profit for Sep 2026 | $7,500 | $7,800 |
A $300 gap doesn't sound like much. But look at what each view is actually telling Jess.
The cash view includes $3,000 earned in Aug 2026 and $900 of Aug 2026 costs. It excludes $4,000 of Sep 2026 work that clients haven't paid yet. So it's really describing "what hit the bank in Sep 2026", which is a mix of two months.
The accrual view tells her what the work done in Sep 2026 earned and what it cost. That's the number to use when asking "was Sep 2026 a good month?" or "are my prices right?".
Where the gap gets bigger
That example is mild. Here are three situations where the two views pull far apart.
A big invoice paid late
In Oct 2026 Jess lands a $15,000 branding job, invoiced on 28 Oct 2026 with 30-day terms. Cash view: Oct 2026 looks quiet, Nov 2026 looks like a bumper month. Accrual view: Oct 2026 was the strong month, because that's when the work was done.
If Jess judged her business on the cash view, she might panic in Oct 2026 and feel flush in Nov 2026, the exact opposite of the truth.
Paying a year upfront
On 1 Jul 2026 Jess paid $1,800 for a 12-month design software licence. Cash view: Jul 2026 carries the whole $1,800 and the other eleven months carry nothing. Accrual view: $150 a month, spread across the 12 months it covers.
In the books, the accrual approach looks like this. When she pays:
| Account | Debit | Credit |
|---|---|---|
| Prepaid expenses | $1,800.00 | |
| Business bank account | $1,800.00 | |
| Total | $1,800.00 | $1,800.00 |
Then each month from Jul 2026 to Jun 2027:
| Account | Debit | Credit |
|---|---|---|
| Software and subscriptions | $150.00 | |
| Prepaid expenses | $150.00 | |
| Total | $150.00 | $150.00 |
After 12 months, the prepaid balance is back to zero ($1,800 less 12 × $150).
A slow-paying client
If a client owes $6,000 and pays 75 days late, the cash view simply shows nothing for those months. The accrual view shows the income and a receivable sitting there getting older, which is exactly the warning you want.
Pros and cons, honestly
| Cash bookkeeping | Accrual bookkeeping | |
|---|---|---|
| Simplicity | Very simple: the bank feed nearly is your books | More steps: invoices, bills and some adjustments |
| Shows money in the bank | Yes, directly | Need the cash flow report alongside |
| Shows whether a month was profitable | Only roughly | Yes |
| Shows who owes you and what you owe | No | Yes, through receivables and payables |
| Good for | Very small, mostly cash or card-on-the-spot sales | Anyone who invoices, holds stock or has bills on terms |
The honest trade-off: accrual takes a bit more discipline. You have to enter bills when they arrive rather than when you pay them, and occasionally post an accrual or prepayment. In return you get numbers you can actually run the business on.
So which should you use?
For day-to-day management, here's a practical way to think about it.
Cash bookkeeping is often enough if: you're a sole trader paid on the spot (a market stall, a mobile barber, a personal trainer taking card at each session), you have almost no bills on credit, and you don't hold stock.
Accrual bookkeeping is worth it if: you invoice customers and wait to be paid, you get supplier bills on 14 or 30-day terms, you hold stock, or you've got staff and want to see whether jobs are actually profitable.
Most businesses that use accounting software end up somewhere sensible in the middle without thinking about it. Once you're sending invoices and entering bills in the software, your profit and loss is largely accrual already, and your bank reconciliation and cash flow report keep the cash view honest. That's the "both views" approach, and it's what we'd suggest for most.
If you're not sure which suits your situation, ask your accountant once. They'll also tell you whether the basis for tax reporting needs to be different, which it sometimes does.
Common mixed-up habits
- Invoicing in the software, but coding customer payments straight to income. That counts the sale twice. Match the payment to the invoice instead.
- Entering bills only when you pay them. Your payables report becomes useless and your profit swings around with your payment timing.
- Comparing a cash month to an accrual month. If you switch approaches, don't compare the months either side of the switch; they're measuring different things.
How HelloBooks helps
HelloBooks lets you raise invoices and record bills, then match the bank-feed or CSV payments against them, which gives you the accrual view in your P&L without extra effort. The Cash Flow report shows the cash side alongside it, and aged receivables and payables show who owes what. All three main reports and the ageing reports are on the Free plan. On Pro (A$30/month), recurring invoices and bill approvals take some of the routine out of it, and AI Analysis is available on every report. More on invoice software and cash flow management.
FAQs
Can a small business use cash bookkeeping?
For keeping your own management books, yes, many very small businesses do. How you report for tax and GST is a separate question; your accountant or BAS agent will tell you what applies to you.
Does accrual bookkeeping mean I pay tax on money I haven't received?
That's a tax question rather than a bookkeeping one, and the answer depends on your circumstances. Ask your accountant. The way you keep your management books doesn't by itself decide it.
Is accrual bookkeeping much more work?
A bit more, mainly entering bills when they arrive and the occasional adjustment for prepayments. If you already send invoices from software, you're most of the way there.
Which view should I use to decide if I can afford something?
Cash, every time. Profit tells you whether the business is working. The bank balance and a cash forecast tell you whether you can pay for the new van this month.
Can I switch from cash to accrual?
Yes. The cleanest time is the start of a financial year, for example 1 Jul 2027 for FY2027-28. You'll need opening balances for receivables and payables, so involve your accountant.
Know which question you're asking, and you'll know which view to look at.
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