Cash vs Accrual Accounting: Which Method Is Right for Your Business?

Cash vs Accrual Accounting: Which Method Is Right for Your Business?

One of the first decisions any Australian business makes about its books is also one of the most quietly consequential: whether to account on a cash or an accrual basis. The choice shapes when income and expenses appear in your reports, how your GST is calculated, and how accurately your numbers reflect what’s really happening in the business. Here’s what the two methods mean and how to think about which fits.

What is cash accounting?

Under the cash method, you record income when money actually lands in your account and expenses when you actually pay them. It’s simple and intuitive, and it keeps your reporting closely tied to your bank balance. For GST, accounting on a cash basis means you only account for the GST on a sale in the BAS period when you’re paid — which can protect working capital, because you’re never remitting GST on an invoice before the customer has paid you.

What is accrual accounting?

The accrual (or non-cash) method records income when you invoice it and expenses when you’re billed, regardless of when money changes hands. This gives a more complete, forward-looking picture of performance: it captures money owed to you and money you owe, so profit reflects the work done in a period rather than just the cash that moved. The trade-off is that you may owe GST on invoices before your customers have paid them.

The real difference: timing

Both methods track the same transactions — the difference is timing. Cash accounting answers “what happened to my money?” Accrual answers “what did my business actually earn and owe?” For a small, service-based business with few debtors, cash is often clearer. For businesses carrying inventory, offering payment terms, or wanting a true read on profitability, accrual usually tells the more honest story.

The GST and ATO angle

In Australia, your choice is partly yours and partly determined by size. Businesses with an aggregated turnover under $10 million can generally choose either method for GST; once you reach $10 million you must account on a non-cash (accrual) basis, and monthly GST reporting begins at $20 million. Notably, the ATO has signalled that from 1 July 2026 it may proactively move businesses that have outgrown these thresholds onto the correct method — so if you’re scaling, this is worth reviewing before the ATO does it for you.

Which should you choose?

There’s no universally right answer — it depends on your size, industry, cash-flow profile and how you want to read your numbers. Many growing businesses start on cash for simplicity and shift to accrual as they scale and need sharper insight. Because the decision affects both compliance and how you see your business, it’s worth getting right with professional guidance rather than by default.

This is general information, not tax advice. Quiddity’s registered BAS agents can help you choose and correctly apply the right method as part of our BAS bookkeeping and managed bookkeeping services. Start a conversation with our team.