Cash vs accrual accounting, explained without the jargon

Every financial report you produce depends on one decision: when does income count? Get this straight and the rest of accounting stops feeling arbitrary.

Cash basis: money counts when it moves

You invoice a client $5,000 in March. They pay in May. On cash basis, that's May income. Nothing happened in March.

• Simple - it matches your bank account
• You're taxed on money you've actually received
• Most freelancers and small businesses use it

Accrual basis: money counts when it's earned

Same invoice. On accrual basis, that's March income - the moment you issued it and earned it - regardless of when it's paid.

• Shows the true shape of your business month to month
• Required in many countries above a revenue threshold
• Can mean paying tax on money you haven't collected yet

Which should you use?

If you're a freelancer or small studio and your local rules permit it, use cash basis. It's simpler, it matches reality, and you're never taxed on an invoice a client hasn't paid. Switch to accrual when a lender, investor or your tax authority requires it - or when you're big enough that timing distortions genuinely mislead you.

Rule of thumb: cash basis tells you what happened to your bank account. Accrual basis tells you how the business actually performed.

See both in one click

In FolioMate, open Reports and use the cash/accrual toggle on the Profit & Loss. The same underlying data, re-cut both ways - so you can hand your accountant whichever one they ask for without redoing anything.