Accrual Basis Accounting

Accrual basis accounting records income when it is earned and expenses when they are incurred, not only when money is received or paid.

Accrual accounting separates the business activity from the cash timing. If you send an invoice in May and get paid in June, the May sale can still appear in May’s reports. If you receive a supplier bill in May and pay it in June, the May expense can still belong to May.

This is different from cash accounting, where income and expenses are usually recorded when money moves through the bank account.

Where Accrual Basis Accounting Appears

You will see accrual basis accounting in invoices, bills, unpaid customer balances, supplier balances, management reports, financial statements, accountant workpapers, and year-end adjustments.

It is closely linked to accounts receivable, accounts payable, accounting close, cash flow statement, and Business Activity Statement (BAS) preparation.

How Accrual Basis Accounting Works In Practice

Accrual accounting asks: when did the business earn the income or use the goods and services?

That means the profit and loss can include income before cash is received, and expenses before bills are paid. The unpaid amounts sit on the balance sheet as receivables or payables until money moves.

For GST, businesses may use cash or non-cash accounting methods depending on their circumstances. The ATO explains the distinction in its GST accounting method guidance.

Simple Example

A designer completes a $3,000 project on 28 June and sends the invoice the same day. The client pays on 10 July.

Under accrual basis accounting, the $3,000 income belongs in June because the work was completed and invoiced then. Under cash accounting, the income would usually appear in July when the money arrived.

Why Accrual Basis Accounting Matters

Accrual accounting often gives a better view of performance because it lines up income and related expenses with the period they belong to. That helps you see whether a month was actually profitable, not just whether customers happened to pay during that month.

The trade-off is that profit is not the same as cash. A business can show a profit while still waiting for customers to pay, so accrual reports should be read alongside cash flow reports.

How Gimbla Can Help

Gimbla tracks invoices, bills, payments, GST, and bank reconciliation together, so you can see both sides of the picture: what has been earned or incurred, and what has actually been paid.

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In Short

Accrual basis accounting records business activity when it happens, even if cash follows later. It helps explain profit, while cash flow reports explain timing.