Cash Vs Accrual - Are you confused already?


Did you even realise that there are two ways to run a profit and loss report and how you do so could drastically affect the figures?


So what is cash vs accrual? Reporting on a cash basis is literally reporting on the dollars that have physically gone in and out of your bank account. So in this instance only customer invoices that have actually been paid by the customer will be included as revenue, and only supplier bills that have actually been paid to the supplier will be included as expenses.


If you report on an accruals basis, the reporting will include any customer invoices that have been raised in your accounting software, but not necessarily been paid by the customer into your bank account. The same goes with suppler bills, the report will show any bills entered into your system for the reporting period, regardless of whether they have been physically paid or not.


Tax returns are generally prepared by the tax agent on an accruals basis, and so will take into account all unpaid sales invoices and supplier bills entered into your software.


Your BAS can be reported on either a cash or accruals basis, and this is set when you register for GST reporting. If you are yet to register for GST and are thinking of doing so in the future, consider carefully the implications of each reporting method before you submit your registration.


Both your profit and loss and balance sheet reports in your accounting software generally default to the accruals reporting method, which catches the novice player out and leaves them questioning why the report doesn't reflect what has been received in the bank. You can usually change the reporting method in your system - and don't forget, if you are running the profit and loss report that the figures are ex-GST as the GST amounts will have been sent across to the balance sheet!


For more insights into how to understand what you are looking at in your reports, book in for a training session!

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