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Cash vs Accrual

Cash vs Accrual refers to the two main accounting methods in Australia. Cash accounting records income and expenses when money actually moves. Accrual accounting records income and expenses when invoices are issued or received — not when paid. This affects BAS, GST reporting, tax timing, and how lenders assess business income for Low Doc Loans, Business Loans, Invoice Finance and Working Capital Loans. Related terms: GST, BAS, Turnover.

If you’re trying to smooth out cashflow or juggle lumpy invoices, understanding cash vs accrual links directly into your overall funding strategy. You’ll see it come up a lot in our Business Owners Finance Hub, in guides like Business Cashflow System (WCL + LOC + Invoice), Working Capital Loans 2025 and Invoice Finance 101.

Why Cash vs Accrual Matters

The chosen accounting method affects how revenue and expenses appear in financial documents. Lenders use this information to assess real cashflow, trading health and servicing capacity when you apply for Business Lines of Credit, Working Capital Loans or Invoice Finance.

  • Changes how income appears on BAS and financial statements
  • Alters cashflow patterns used in loan assessment
  • Impacts GST timing and reporting obligations
  • Affects eligibility and structure for certain low doc loan products
  • Important for cashflow-heavy industries like trades, transport, and cafés

How Cash vs Accrual Works

  • Cash accounting recognises income only when money is received and expenses when paid
  • Accrual accounting recognises income when invoices are issued and expenses when liabilities arise
  • Cash method can simplify GST reporting for eligible small businesses
  • Accrual method shows a more accurate long-term financial picture and outstanding debts
  • Lenders may ask which method you use, as it changes loan servicing calculations and trends

Many lenders prefer understanding accrual-based income when assessing Working Capital Loans, Invoice Finance and broader cashflow solutions alongside Business Lines of Credit.

Official reference: ato.gov.au

Which is better for small businesses?
Cash accounting is often simpler and preferred for small businesses with straightforward cashflow, especially where you’re also using tools like a Business Line of Credit to smooth out short-term ups and downs.
Does the ATO let you choose?
Yes — most businesses can choose unless their turnover exceeds certain thresholds. The rules are explained in more detail on ato.gov.au.
Do lenders care which method I use?
Yes — the accounting method changes how income appears, which can affect servicing and loan calculations for products like Working Capital Loans and Invoice Finance.
Does GST reporting differ?
Yes — cash basis reports GST when cash moves, accrual basis when invoices are issued. That difference flows through to your BAS, cashflow and how lenders interpret the numbers.
Can I switch between methods?
Yes, but the ATO requires consistency and proper adjustment during the changeover. It’s usually worth getting advice from your accountant before switching, especially if you’re planning to apply for Business Loans soon.