What is the difference between cash and accrual accounting?
The difference is timing. Cash accounting records a sale when the money arrives and a bill when you pay it. Accrual records the sale when you do the work and the bill when you take on the cost, even if no money moves until weeks later.
The IRS describes it the same way in Publication 538. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it, regardless of when payment is received, and deduct expenses in the year you incur them.
Picture a job you finish and invoice in the last week of December, with the customer paying in the second week of January. On cash, that sale belongs to January and to the new tax year. On accrual, it belongs to December, the month you did the work, so one job and one payment can land in two different years depending on the method.
| Question | Cash method | Accrual method |
|---|---|---|
| When is a sale recorded? | When the money arrives | When the work is done |
| When is a bill recorded? | When you pay it | When you take on the cost |
| Monthly bookkeeping work | Deposits and payments | Deposits, payments, receivables and payables |
| Unpaid invoices in reports | Not shown until paid | Shown on the balance sheet |
| Monthly profit figure | Moves with payment timing | Follows the work done that month |
How do the two methods compare on what an owner cares about?
Cash wins on simplicity and on matching your bank balance. Accrual wins on showing real monthly profit and on tracking who owes what. The rest depends on how your business gets paid.
How much work does each one take?
Cash is lighter. Your books mostly follow the bank, so the monthly routine is recording deposits and payments and reconciling them to the statement. Accrual adds two running lists: invoices you've sent that nobody has paid yet, called receivables, and bills you've received but haven't paid, called payables. Both lists need keeping current or the reports drift away from reality.
What does the profit figure actually tell you?
On cash, a month's profit is money in minus money out, and that can swing hard. A month where three slow customers finally paid looks great, while the month you paid a large annual bill looks awful, even if the work done in both months was about the same. Accrual matches income to the month the work happened and costs to the month they belong to, so your profit and loss report shows whether the work itself made money.
Can you see who owes you money?
On a pure cash setup, an unpaid invoice usually doesn't show in your reports until it's paid, so what customers owe you lives in an invoicing tool, a spreadsheet or your memory. Accrual puts it on the balance sheet.
Which method fits your business?
Cash tends to fit when you're paid at the time of the job or within a few days, you pay suppliers on receipt, and you carry little or no stock. A cleaner paid by card at each visit, or a consultant who bills and gets paid in the same week, usually sits here.
Accrual tends to fit when you invoice on terms and wait weeks to be paid, buy materials on account, hold stock, or run jobs that span more than one month. A cash view of that kind of business can show a loss in a busy month and a windfall in a quiet one, which is exactly backwards.
Before settling on cash, check that you're allowed to use it. Publication 538 has a section on excluded entities, with exceptions and a gross receipts test, that decides whether some businesses may use the cash method. The dollar limit in that test changes, so confirm the current figure with the IRS or your own tax professional rather than trusting a number you read somewhere online.
If you want a second opinion on which view to run the business by, a financial consultation is a sensible place to ask.
Not sure which method your books are on?
Call JE Ledger on (305) 748-1367, send an email or message on WhatsApp, and describe how your customers pay you.
Where do Orlando's own fees and taxes land on each method?
Two local items show the difference well. The first is the business tax receipt. The City of Orlando business tax receipt page says all businesses must have both city and county business tax receipts, and that every receipt expires on September 30. Under section 205.053 of the Florida Statutes, receipts go on sale from July 1 each year and are due on or before September 30, with a penalty for paying late.
On cash books, each renewal is an expense in the month you pay it, which is usually somewhere between July and September. On accrual books, a September payment for a receipt that runs to the following September is often recorded as a prepaid cost and spread over the months it covers.
The second is rental income. If you rent out a home or unit in Orlando for six months or less, the Orange County Comptroller's tourist development tax page gives the county rate as 6% (checked October 2026). The Florida Department of Revenue's transient rental brochure adds the state's 6% sales tax, plus any local surtax, on the same stays, paid to the state rather than the county. None of that money is yours, whichever method you use. On cash books it arrives inside the same deposit as the rent, so record it as money owed rather than income, or your profit figure will overstate what the rental actually made.
If you want those city, county and rental taxes set up properly in your books, start with bookkeeping for Orlando businesses.
Can you switch from cash to accrual later?
Yes, though not casually. Publication 538 lists a change from the cash method to an accrual method, or the other way round, as a change that requires IRS approval. It says you generally file Form 3115 to request the change, and that in some instances automatic consent is available. Which route applies to you, and when to file, is a question for your own tax professional.
What should you set up whichever method you choose?
Three habits make either method work. Keep business and personal money in separate accounts, so nobody has to guess which side a payment belongs on. Build a chart of accounts with categories you actually use, including receivables and payables if you're on accrual. Then close each month on a set date, reconciled to the bank, so the reports are current when someone asks for them.
If you'd rather hand the monthly work over, JE Ledger lists business bookkeeping, accounting services and financial consultation. Use the contact page to say how you invoice, how you get paid and which method you think your books use now.
