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Cash Basis vs. Accrual: Comparing Accounting Methods

Video: Is a check considered cash or accounts payable? | A Guide to Accounting Methods

Is a check considered cash or accounts payable? Find out the difference between cash-basis vs accrual accounting methods.

A business can operate under one of three accounting methods: cash accounting, accrual accounting, or hybrid accounting. Each method recognizes income and expenses differently. If you find yourself asking, “Is a check considered cash or accounts payable?” then you will want to keep reading…

Most businesses can choose their accounting method. However, there are some restrictions. For example, Corporations (other than S-Corporations) with an annual gross income over $5 million are not allowed to use the cash method.

The IRS is automatically informed of your accounting method choice when you file your first tax return. The IRS must grant you approval before you change your method. Cash to accrual conversion can be difficult. You can submit Form 3115, Application for Change in Accounting Method to the IRS with the request.

Note: No user fees are charged for changes that qualify under the Automatic Change Request Procedures. However, there is a significant user fee charged for Advanced Consent Request Procedures. Instructions for these two procedures can be found here.


When using the cash method, you report income when you actually receive it. You report expenses when you actually pay them. Cash basis is the most common and easiest accounting method for business transactions.

Let’s say you receive a check from a customer near the end of a tax year. You record the check for the year you received it, even if you do not cash the check until the following year.

Payments follow a similar format in the cash method. A check becomes an expense for the year that you wrote it, not when the check clears the bank.


Under accrual method, accounts receivable and accounts payable must be frequently updated.

You report income as earned when you send an invoice to a customer, even though no money trades hands. You do not report income when you physically receive it.

Likewise, you incur expenses when transactions occur, not necessarily when you pay an expense. Expenses may be used to offset you income when you have not yet received an actual payment.

Let’s look at a hypothetical transaction:

Recording Income

Abby owns an advertising agency. She just completed a project for a client, and is ready to be paid for her services. At what point does she record income?

Cash method: Abby records income when the client pays her invoice.

Accrual method: Abby records income as soon as she completes the project and invoices her client.

Recording Expenses

Abby orders office supplies from a local company. When does she record this expense?

Cash method: Abby records the supplies as an expense when she has paid for them.

Accrual method: Abby records the supplies as an expense when they are delivered to her.

Considerations when selecting an accounting method:

Cash Basis Accrual Basis
 Income recognized  Upon receipt  When earned
 Expenses recognized  When paid  When incurred
 Ease of use  Simple  Complex
 Time spent recordkeeping  Minimal  More time involved
 Record inventory  No (although some exceptions)  Yes
 Use with accounts payable and receivable  No  Yes
 Uncollectible accounts  No  Yes



The hybrid accounting method offers a combination of cash and accrual systems. Most businesses will operate under either the cash or the accrual accounting method. But, you may consider the using hybrid method as long as it accurately reflects your income and expenses.

Try our easy-to-use small business accounting software for your small business for free today!

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