Cash basis and accrual basis, with the same month booked both ways
Updated 16 October 2026
Cash basis and accrual basis are two ways to decide which month a sale or a cost belongs to. Cash basis records a sale when the customer pays and a cost when the business pays. Accrual basis records a sale when it is earned and a cost when it is incurred, whatever the payment date. The same business, in the same month, can show different profit under each method. This page books one month both ways, shows what each method reports, and explains which businesses tend to use which. The method used on a tax return is a question for a CPA.
One invoice, two methods
| Event | Cash basis | Accrual basis |
|---|---|---|
| Work done and invoiced in March | Nothing recorded | Sale recorded in March, with an amount owed by the customer |
| Supplier bill received in March, paid in April | Cost recorded in April | Cost recorded in March, with an amount owed to the supplier |
| Customer pays in May | Sale recorded in May | Amount owed by the customer cleared; no new sale |
Accrual books carry two balance sheet accounts that cash books lack. Accounts receivable holds what customers owe. Accounts payable holds what the business owes its suppliers. Those two accounts are where the timing difference lives.
A firm finishes a $12,000 project in March and invoices it that month. Materials for the job cost $4,000, billed in March and paid in April. The customer pays in May. Accrual books show $8,000 of profit in March. Cash books show a $4,000 loss in April and $12,000 of income in May. Both sets of books reach the same $8,000 over the three months, on different dates. The figures are an illustration.
What each method shows an owner
Cash basis tracks the bank account. It is simple to keep, and it shows the owner what came in and went out. It cannot show what customers owe or what the business owes, and its monthly profit swings with the dates customers choose to pay. Accrual basis matches each sale to the month the work was done and each cost to the sale it supports. Its monthly profit follows the work. It can show profit in a month when little cash arrived, so an accrual business also watches cash with a forecast.
A consulting firm does $30,000 of work in each of January, February and March. Clients pay $10,000 in January, $55,000 in February and $25,000 in March. Cash books report income of $10,000, $55,000 and $25,000, so February looks five times as busy as January. Accrual books report $30,000 in each month. The quarter's total is $90,000 under both methods. The figures are an illustration.
When franchise fees follow billing
Some franchise agreements set the royalty on revenue billed, whatever the date the customer pays. The royalty is the ongoing fee a franchisee pays the brand, usually a percentage of sales. A franchisee on that kind of agreement owes the fee on accrual figures and pays it from cash. Its books need a receivables ledger that shows which billed work has yet to be collected, because the fee on that work has already left the bank.
ServiceMaster Restore's 2026 Franchise Disclosure Document (FDD), the document a franchisor gives a buyer before a sale, has gross service sales reported monthly on the accrual basis in the month the work was billed, whether or not it is collected. ServiceMaster Restore charges a 10% royalty, a 2% ad fund and 2% local advertising. Restoration work is often paid by insurers months later. A ServiceMaster Restore job billed at $40,000 in March adds $5,600 to March's fees, $4,000 of it royalty, before any of the $40,000 arrives. At the ServiceMaster Restore average of $3,146,371 of sales, the three charges total $440,492 a year.
Which businesses use which
Cash basis fits a small service business with no inventory that is paid at the time of service, where the bank account and the profit and loss statement tell much the same story. Accrual basis fits a business that holds inventory, invoices customers and waits to be paid, or carries large bills on terms. Lenders, investors and buyers usually ask for accrual statements, because accrual profit follows the work. A business that expects to borrow, raise money or sell in the coming years can set up accrual books from the start and avoid a conversion later.
A retailer buys $50,000 of stock in October for sales in November, December and January. Cash books record the full $50,000 as a cost in October, which shows a loss for that month and inflated profit in the following three. Accrual books hold the $50,000 as inventory and move each unit's cost into cost of goods in the month it sells. The figures are an illustration.
The tax method and the books method
Tax rules can require accrual accounting for some businesses, for example those above certain revenue levels, those that carry inventory, and C corporations. The rules and thresholds change, and a CPA confirms which method the business must use on its return. Many businesses keep accrual books for management and file on a different basis. That works when the books are set up so the two views reconcile, with a schedule at year end that walks from book profit to the figure on the tax return.
A business keeps accrual books that show $210,000 of profit for the year. Receivables rose $35,000 during the year and payables rose $12,000. A cash-basis view of the same year starts at $210,000, subtracts the $35,000 earned and still uncollected, and adds the $12,000 incurred and still unpaid, for $187,000. The schedule goes into the year-end package with the closed statements. The figures are an illustration.
What this means for an owner
Cash basis records a sale when the money arrives. Accrual basis records it when the work is done. Both methods reach the same total over time, and they differ month to month. Accrual books carry receivables and payables, show profit by the month the work happened, and are the format lenders and buyers usually ask for. A franchise whose royalty follows billing pays fees on accrual figures from cash. A CPA confirms the method used on the tax return.
Bookkeeping at Averan
Averan Advisors sets up and keeps cash or accrual books, converts cash books to accrual, and prepares a year-end schedule that walks from accrual profit to cash profit. The bookkeeping service page describes the monthly work.
The monthly close page explains what closing the books on a set date each month involves.
Also worth reading
If you want this done for you
What happens next
Reading about it and having it done are different things. Here is exactly what happens if you want the second one.
- The call takes thirty minutesYou describe the business and where the numbers are letting you down. We give you an expert view of your situation, and what we would start with. There is no pitch deck.
- We look at the fileYou give us read access to the books as they are. We come back with what is wrong, what it will take to fix, and whether the answer is bookkeeping, controller work, or something else.
- We send a written scope and a priceIt lists what we do each month, what you get, the date it lands and the fee. We agree it before anything starts, and it does not change unless you agree.
- We take over the books and close the first monthWe set up access and systems and enter the opening balances. The first close lands on the date in the scope, and every one after it does too.