Cash Basis Accounting

Cash basis accounting records income when money is received and expenses when money is paid.

Cash basis accounting follows the movement of cash. If a customer has not paid yet, the income is usually not counted under the cash basis. If a supplier bill has not been paid yet, the expense is usually not counted under the cash basis.

That makes it different from accrual basis accounting, which records income and expenses when they are earned or incurred, even if the cash moves later.

Where Cash Basis Accounting Appears

You will usually see cash basis accounting in:

small business bookkeeping setup
GST and BAS method settings
accountant discussions about income timing
cash reports and tax workpapers
bank reconciliation workflows
comparisons between cash and accrual reports

The ATO’s GST accounting method guidance explains that GST can be accounted for on a cash basis or a non-cash basis, depending on eligibility and choice.

How Cash Basis Accounting Works In Practice

On a cash basis, the payment date usually matters most. A December invoice paid in January is recorded for cash-basis income in January. A supplier bill received in March but paid in April is recorded for cash-basis expense in April.

This can make cash flow easier to follow, but it can hide amounts owed to or by the business if reports are read without checking unpaid invoices and bills.

Simple Example

A consultant sends a $2,200 invoice on 25 June. The customer pays on 8 July.

Under cash basis accounting, the income is recorded when the payment arrives in July. Under accrual basis accounting, the income may be recorded in June, when the work was invoiced or earned.

Why Cash Basis Accounting Matters

Cash basis accounting can feel simpler because reports line up more closely with bank movement. That can help very small businesses understand what has actually been paid.

For GST, eligible Australian businesses may be able to use the cash method so GST is reported in the BAS period when payment is received or made. The choice affects GST timing, cash flow, and how accounting software should prepare reports.

Easy Way To Remember It

Cash basis follows the money. Accrual basis follows the business activity.

How Gimbla Can Help

Gimbla keeps invoices, bills, receipts, payments, bank reconciliation, GST, and reports connected, so owners can understand both cash movement and unpaid amounts.

Helpful Gimbla Guides

In Short

Cash basis accounting records income and expenses when money changes hands. It is useful for cash visibility, but unpaid invoices and bills still need attention.