Home Aplos Short The Difference Between Cash Basis And Accrual Basis

The Difference Between Cash Basis And Accrual Basis

by Megan DeCosta

Cash and accrual are two ways your organization can keep track of its finances. Most organizations function off of a cash basis, but there may be a situation where running your finances on an accrual basis would be beneficial.

So what’s the difference? Operating on a cash basis simply means you record your income as you receive money, and you record your expense as you pay money out. Operating on an accrual basis means you’ll record your income and your expenses based on when the event occurs rather than when you actually receive the money or paid the money.

For example, let’s say you have a contractor come out and do work on your building, and he gives you an invoice for the work that day. Here’s the breakdown:

Cash Basis

If you were operating on a cash basis, you would record the expense as of the date the money left your bank.

An advantage of operating on a cash basis rather than an accrual basis is it’s super simple. You record your income as you receive it and expenses as you pay them out. A disadvantage is it may be too simple. You may not be able to report income and expenses for a previous month or year if you need to.

Accrual Basis

If you were operating on an accrual basis, you would record the expense on the day the contractor gave you the invoice.

An advantage of operating on an accrual basis rather than a cash basis is you have a little more flexibility with this option. If you received income you need to record for a prior month or year, you can do that. But a disadvantage is it can complicate things in your accounting.

So there you have it. If you enjoyed this quick lesson, check out the rest of our Aplos Short videos.

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Angela Callaway January 16, 2021 - 7:43 pm

How do I switch from cash to accrual basis accounting? I watched the Aplos short video that explains the difference between the two systems but what I need to know is how to change the way I post my income and expenses in the software. Please advise. Thank you.

Janie Richmond January 18, 2021 - 1:26 pm

Hi Angela,

The determining factor in Aplos that dictates cash or accrual reporting is whether you use AP/AR. If you don’t, cash and accrual reports will be the same. If you do, and income or expenses are recorded in different periods than when cash moves, the reports can be toggled to show one basis or another.

If you have any other questions, feel free to email support@aplos.com.

– Janie


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