Should my business be on the accrual or the cash basis of accounting? Why?

Cash basis:

Pros:

  • Simple and shows how much money you have currently
  • Easier to calculate GST
  • Don’t have to pay taxes on money not yet received

Cons:

  • Not as accurate (could be misleading as you may not have paid certain expenses i.e. accounts payable or accounts receivable)
  • Not as helpful for management purposes as it shows a very short-term perspective of your firm

Accrual basis:

Pros:

  • Accurate portrayal of business finance and performance
  • Shows long-term

Cons:

  • More complex as there is more work to do (more invoice to pay attention to)
  • May have to pay e.g., taxes before customer have paid you (but if the customer cancels the order tax paid can be redeemable on next tax return)