November 12, 2026 · 5 min read · NanoFora
Cash basis vs accrual accounting: which should a small business use?
The practical difference between cash and accrual accounting, when each is allowed, and how it changes your reported profit.
The difference in one line
Cash basis records income and expenses when money moves. Accrual records them when they are earned or incurred, regardless of payment.
Example
You invoice 1,000 in December and get paid in January. Cash basis: January income. Accrual: December income.
When cash basis works
- Sole traders, freelancers and small service businesses
- Businesses without significant stock or credit terms
- When the tax authority allows it for your size (rules vary by country)
When accrual is needed
- Larger companies and those requiring audited accounts
- Businesses with stock, long contracts or big receivables
- When investors or lenders need comparable statements
Effect on tax
Cash basis can shift profit between years depending on payment timing. Pick a method and apply it consistently; confirm eligibility with your accountant.
How NanoFora handles both
The bank statement P&L draft is cash-basis by design. NanoFora's accounting workspace builds accrual-style statements from ledgers and invoices. See the P&L explained.
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Review your business records
Explore NanoFora’s financial analysis and review capabilities, or try the free financial calculators before uploading your records. Educational articles are not professional advice.
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