Understanding Cash vs Accrual Accounting in QuickBooks

If you’re a small business owner using QuickBooks, one of the most important financial decisions you'll make is whether to use cash or accrual accounting. Each method paints a different picture of your business’s health, and understanding the difference is key—especially during tax season.

At DBR Bookkeeping, we help service-based businesses in Northwest Arkansas and beyond understand how to set up QuickBooks Online correctly and choose the best accounting method for their goals.

Let’s break it down.

What Is Cash Basis Accounting?

Cash basis accounting records income when it’s received and expenses when they’re paid. It’s simple, straightforward, and often preferred by freelancers, coaches, and solo entrepreneurs who don’t carry inventory.

Pros:

• Easy to manage and understand

• Matches cash flow with bank activity

• Ideal for businesses with few assets or liabilities

Cons:

• Doesn’t show money owed or incoming payments

• Can make your business appear more profitable than it really is during tax season

What Is Accrual Basis Accounting?

Accrual accounting records income when it's earned (even if unpaid) and expenses when they’re incurred (even if unpaid). It gives a more accurate picture of profitability, especially for businesses with delayed payments, contracts, or retainers.

Pros:

• Provides a clearer long-term financial view

• Recognizes income and expenses in the correct period

• Preferred for home service pros, creative agencies, and growing service firms

Cons:

• More complex to manage

• May require professional bookkeeping support

• Doesn’t always reflect actual cash on hand

How QuickBooks Helps You Choose

QuickBooks Online lets you easily toggle between cash and accrual reports, helping you analyze your business from both perspectives. However, you must choose one method for tax reporting, which is typically set when you file your first tax return.

Not sure which method is best? That’s where we come in.

FAQ

Q: How do I know which method I’m using in QuickBooks?
A: In QuickBooks Online, go to your Reports and check the “Accounting Method” at the top of the screen. You can toggle between cash and accrual views for reporting.

Q: Can I switch between cash and accrual accounting later?
A: Yes, but switching for tax purposes requires IRS approval. Be sure to consult a tax professional or bookkeeper before making the change.

Q: What’s better for a service-based business?
A: If you invoice clients or have delayed payments, accrual gives you a better view. Cash may work for simpler operations.

Q: Will QuickBooks help me file taxes with either method?
A: Yes, but the accuracy depends on how your books are maintained. Proper setup and categorization are key.

Get Help Choosing the Right Method for Your Business

Choosing the right accounting method is more than a checkbox—it shapes how you view your finances. If you’re unsure which approach is best for your business, we can help you decide and get QuickBooks set up the right way from the start.

📅 Book a free call with Dr. Bryan Raya today and get clear, confident, and tax-ready.

Let’s start Doing Business Right.

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