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Choose between cash and accrual accounting methods in QuickBooks Online

SOLVEDby QuickBooks185Updated 3 weeks ago

Learn more about the difference between Cash and Accrual methods for QuickBooks Online and how to change between the two.

You can change your accounting method in QuickBooks in just a few steps. Just remember that each method reports your income and expenses differently. Once you change your accounting method, accounts and balances in your reports might show up differently.



Which accounting method should I use?

Each method has its own pros and cons. It's important to understand how each method works so you can choose the best bookkeeping practices for your business. If you're unsure which method to use, talk to your accountant. Or, find a ProAdvisor if you need one.

You can also visit the Canada Revenue Agency (CRA) website  to find out more on Accounting methods and the industries to which they can be applied.

Cash

When using the Cash accounting method, you record income and expenses at the time you actually receive a payment or pay a bill. 

The cash method in reports:

  • This report counts income or expenses only once you get a payment or pay a bill.
  • If you sent an invoice or got a bill but the money hasn’t changed hands yet, your report doesn’t include it in your income or expenses.

Accrual

When using the Accrual accounting method, you record income and expenses when you send the invoice or receive the bill.

The accrual method in reports:

  • This report counts income and expenses regardless of if the invoice or bill was paid or not.
  • It includes income and expenses even if the money hasn’t changed hands yet.

How Cash and Accrual accounting affect sales tax

When you use the cash basis method, you report your income when you receive it.

When you use the accrual basis method, you report your income when you bill it.

In August, you send out a CA $1000 invoice, with a sales tax rate of 6%, for a grand total of CA $1060. You receive a CA $424 payment in August, and the remaining CA $636 in September.

  • With cash basis, you owe two sales tax payments, CA $24 for August and CA $36 for September, because you received payments in both August and September.
  • With accrual basis, you owe one sales tax payment of CA $60 in August, because you invoiced your customer in August.


Change the accounting method for your company

  1. Select Settings ⚙, then select Account and settings.
  2. Go to the Advanced tab.
  3. In the Accounting section, select the Edit ✎ icon.
  4. Select an Accounting method.
  5. Select Save, then Done.


Change the method on a report

To see the difference another accounting method will make in your reporting, you can customize an individual report to use a different accounting method and compare the results.

To change the method used on an individual report:

  1. Go to Reports (Take me there).
  2. Select a report.
  3. Under Accounting method, select Cash or Accrual.
    Note: You can also select the Customize button to open the Customize report window and change the setting in the General section.
  4. Select Run report.

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