February 1, 2025 · Fundamentals · 7 min read

Cash vs. accrual: which accounting method fits you?

The method you use to record income and expenses changes how your reports look—and sometimes how your taxes feel. Here’s the owner-friendly version.

Cash basis in one sentence

You record income when money hits the bank and expenses when money leaves. It’s simple, intuitive, and matches how most owners think about cash in the account.

Accrual basis in one sentence

You record income when you earn it (e.g. invoice sent / service delivered) and expenses when you incur them—even if cash moves later. It better shows economic performance when timing of cash and work don’t match.

A quick example

You finish a $5,000 project in March and get paid in April. On cash basis, that revenue shows in April. On accrual, it shows in March (with accounts receivable until the cash arrives). Neither is “fake”—they answer different questions.

When cash basis is usually enough

• Service businesses paid largely at time of service or with short collection cycles
• Low inventory or no inventory
• You’re focused first on cash runway and simplicity
• Your CPA confirms cash is acceptable for your entity and size

When accrual (or hybrid) starts to matter

• You invoice and wait 30–90 days for payment regularly
• You hold inventory or have large prepaid contracts
• Lenders, investors, or franchisors want accrual statements
• You’re approaching thresholds where tax rules may require accrual (confirm with a CPA)

What we recommend as your bookkeeper

Start with what matches your reality and what your tax professional expects. Congruence Ledgers’ Starter plan defaults to cash-basis bookkeeping for simplicity. Growth and Scale support simple accrual when it’s the right fit. We’ll never push a method that makes your CPA’s job harder.

Important: Tax method selection has rules and exceptions. This article is educational, not tax advice—confirm with your CPA or EA before changing methods.

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