Cash or accrual accounting: which one fits
The method decides when income and expenses show up in your books. Here’s the difference in plain words.
The short answer
Cash accounting records income when money arrives and expenses when you pay them. Accrual records them when they’re earned or owed. Most small businesses can file taxes on the cash method, but accrual gives a truer picture of each month.
Cash method
Simple and matches your bank account. The trade-off: a big customer payment can make one month look great and the next look terrible.
Accrual method
Revenue counts when you earn it and expenses when you incur them, regardless of when cash moves. Better for understanding margins and required for some larger businesses.
Which to choose
Many small businesses keep tax returns on the cash method and run monthly management reports on accrual. Your CPA can tell you whether you’re eligible to use cash for taxes.
Questions
Can I switch accounting methods?
Yes, but changing your tax accounting method usually requires filing Form 3115 with the IRS. Talk to your CPA before switching.
Your situation isn’t general. A CPA can tell you how this applies to you.
Ask about thisGeneral information as of October 2026, not advice for your situation. Tax rules change; check with a professional before acting.