Cash or accrual: choosing a basis for your books

One of the first questions Akaunty asks when you create an organization is which accounting basis you want: cash or accrual. It sounds technical, but the idea fits in one sentence. Your basis decides when income and expenses count: when money moves, or when it's earned or owed.

Cash basis

Income counts when money arrives and expenses when you pay them.

On a cash basis, your books follow your bank account. You send an invoice in March and the client pays in April: the income belongs to April, because that's when the money arrived. You get a supplier's bill in June and pay it in July: the expense belongs to July.

Cash basis is simple, and it's enough for most small businesses, freelancers and many small non-profits. Your profit for a month is close to "what came in minus what went out", which is easy to check against a bank statement.

Accrual basis

Income counts when you earn it and expenses when you owe them, even if no money has moved yet.

On an accrual basis, the same March invoice is income in March, the month you did the work, even though the cash arrives in April. Until it's paid, it sits on the balance sheet as money owed to you (accounts receivable). The June bill is a June expense, and until you pay it, it's money you owe (accounts payable).

Accrual takes a little more bookkeeping, but it shows profit in the period that actually earned it. That's why agencies that invoice clients, startups reporting to investors and anyone with significant amounts owed in either direction usually prefer it.

The same month, two ways

Here's one month for a small studio, recorded both ways:

What happened in March	Cash basis, March	Accrual basis, March
Invoiced a client 3,000 (paid in April)	0	3,000
Received 1,200 for February's invoice	1,200	0
Paid 400 rent for March	-400	-400
Got a 250 contractor bill (paid in April)	0	-250
Profit for March	800	2,350

Neither number is wrong. The cash figure tells you what your bank balance did. The accrual figure tells you what the business earned for the work done in March.

How to choose

A few questions settle it for most people:

• Do you get paid at the moment of sale? Shops, cafés and many freelancers paid on the spot see little difference, and cash basis keeps things simple.
• Do you invoice and wait to be paid, or get billed and pay later? Then accrual shows your results more accurately.
• Does someone else rely on your reports? Investors, lenders, boards and auditors usually expect accrual.
• What do your tax rules allow? Some tax authorities require one basis or the other above a certain size. If you're unsure, ask your accountant; this post isn't tax advice.

How it works in Akaunty

You pick your basis in the onboarding wizard, next to your fiscal-year start month. Each option is explained in a sentence on the screen, and cash basis is selected until you choose otherwise.

The choice isn't permanent. Anyone allowed to manage your organization's accounting settings can change it later under Settings → Accounting. Every report shows the basis in its header, next to the organization name and base currency, so nobody reading a printed profit and loss has to guess.

Whichever basis you choose, everything you record becomes a balanced double-entry journal entry. On a cash basis, quick add covers almost everything: income when it arrives, expenses when you pay them. On an accrual basis, you can record amounts owed with a manual journal entry, for example debiting an expense and crediting Accounts Payable when a bill arrives, then debiting Accounts Payable and crediting your bank when you pay it. Your chart of accounts already includes Accounts Receivable and Accounts Payable for exactly this.

Not sure yet? Start with the basis that matches how you get paid today. It's a setting, not a commitment, and your ledger stays balanced either way.