Accrual basis accounting explained
On the accrual basis, a sale counts as income when you earn it, usually when you deliver the work and invoice, not when the customer pays. An expense counts when you incur it, when the goods or services arrive and the bill is owed, not when you pay it.
That timing is why accrual books carry accounts receivable (money earned but not yet collected) and accounts payable (costs incurred but not yet paid). It also means a month’s income statement matches that month’s revenue with the costs of earning it, which makes trends and margins easier to read.
Many small businesses keep cash-basis books, but some are required to use accrual for their tax return, depending on their size and whether they hold inventory. IRS Publication 538 explains accounting methods; your tax preparer can tell you which applies to you.
Example: one March, two ways
In March a studio invoices $5,000 for March work (paid April 10), receives a $1,200 supplier bill for March (paid in April) and pays $800 rent in cash.
| Accrual basis | Cash basis | |
|---|---|---|
| Income | $5,000 | $0 |
| Supplier cost | − $1,200 | $0 |
| Rent | − $800 | − $800 |
| March profit | $3,000 | − $800 |
On the accrual basis March shows the work it actually did. On the cash basis the $5,000 and the $1,200 land in April instead.
Where you’ll see it in fiscal50
fiscal50 reports open with your company’s accounting method, and the Balance Sheet, Income Statement and Trial Balance switch between Cash and Accrual with one click. On accrual, unpaid invoices and bills are included, so receivables and payables show.
Some reports have no switch: the Cash Flow uses the indirect method starting from accrual net income, and the aging reports show what is open either way.