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)