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Cash vs. accrual accounting: timing and method choices
Cash and accrual reporting can tell different stories about the same work. Understand the timing behind receipts and obligations before comparing reports or asking your CPA about a tax-method change.
This guide describes common bookkeeping practice, not a legal or regulatory requirement.
Last reviewed:
General information, not legal or tax advice.
Locate the event that puts income in the period
Under the cash method, income is generally reported when received and expenses when paid. Under accrual accounting, income is generally reported when earned regardless of collection. Track invoice, service and payment dates so the report reader can see why activity appears in different periods.
Sources: IRS Pub 538 (round-1 fact)
Account for money already available to you
IRS constructive-receipt guidance includes amounts credited or made available without restriction. Holding a check does not postpone income merely by delaying possession into another tax year. Flag receipts around the reporting cutoff for your CPA instead of deciding tax timing solely from the bank deposit date.
Sources: IRS Pub 538 (round-1 fact)
Use the SBA timing example to compare reports
SBA illustrates a January sale with a $200 payment received in February: accrual records the sale in January, while cash reporting puts it in February. This is the source’s example, not a forecast for your business. Repeat the comparison with actual unpaid invoices to understand your own reports.
Sources: SBA - Manage your business
Review inventory and method changes with an adviser
IRS guidance generally requires accrual accounting for inventory-related sales and purchases unless an exception applies. Accounting method changes require IRS approval through Form 3115. Bring current reports and your existing tax method to the CPA; a reporting preference alone is not approval to change tax treatment.
Sources: IRS Pub 334 (for 2025 returns); IRS Pub 538 (round-1 fact)
Sources: locate the event that puts income in the period
Review timing differences in your reports
Tidwell helps reconcile the books and organize supporting schedules for your business decisions. We work with your CPA on tax questions and the financial records they need.