Cash vs Accrual Accounting explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Cash and accrual are the two main accounting methods. The difference lies in when you record income and expenses.
Cash basis
Records income when received and expenses when paid — simple, but can distort which period a transaction belongs to.
Accrual basis
Records income when earned and expenses when incurred, regardless of cash — a truer picture, and mandatory for companies.
Which to use
- Cash basis: small professionals/individuals where allowed
- Accrual basis: companies and larger businesses (required by law)
Frequently Asked Questions
What is the difference between cash and accrual accounting?
Cash records when money moves; accrual records when income is earned or expense incurred.
Which method do companies use?
Accrual — it is mandatory under company law.
Is cash basis allowed?
Only for small professionals/individuals where permitted.
Which gives a truer picture?
Accrual accounting.
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