Two philosophies of counting: record when money moves, or record when the obligation arises. The choice shapes your profits, your taxes and what your reports can tell you.
Cash basis
Income when received, expenses when paid. Simple, intuitive, matches the bank account. Available to certain professionals and small setups; useless for anyone carrying inventory or meaningful credit cycles, because it hides receivables and payables entirely.
Accrual basis
Income when earned, expenses when incurred — regardless of payment. This is what companies must follow and what any business with stock, credit sales or investors effectively needs. It answers the question cash accounting cannot: are we actually profitable?
The tax angle
The income tax law permits specified taxpayers a choice of regular methods applied consistently; companies follow accrual under their governing standards. Consistency is the legal requirement — switching methods opportunistically invites scrutiny.
The practical answer
Micro service business, no credit, no stock: cash basis may serve. Everyone else: accrual, with a cash-flow report alongside so you watch both truths.
We set up the right method and the reports — accounting services · ask us.
