Accrual vs Cash Accounting: What’s the Difference?

Most of us naturally think about money the same way we manage our personal bank account:

What’s in the account right now? What’s about to go out?

That’s cash-based accounting — it’s exactly what it sounds like.

Cash accounting: what you see is what you get

Cash accounting records transactions on the day money moves.

• Money in → recorded when it hits your bank account
• Money out → recorded when it leaves your bank account

For many small community groups, this works perfectly.

But there’s a catch…

Cash doesn’t always tell the full story. Sometimes, what’s really happening in your organisation doesn’t line up neatly with when money moves.

Example:
Your organisation is awarded a $10,000 grant on 25 March.

You’ve got the confirmation — it’s yours 🎉.

But the money won’t arrive until April. If your financial year ends on 31 March, cash accounting would show:

• ❌ No income recorded
• ❌ No sign of that $10,000

Even though you know it’s coming. That’s where accrual accounting comes in.

Common examples

1. Income you’ve earned but not received

You invoice on 31 March but get paid in April.

• Recorded as income in March
• Shows as accounts receivable (money owed to you) on 31 March

2. Expenses you’ve used but not paid

Staff are paid fortnightly, but your year ends mid-pay cycle.

• Two days of wages are “owed” at year's end
• Recorded as an expense, even though not yet paid
• Shows as accounts payable (money you owe) on 31 March

3. Grants received or committed

Sometimes it’s about timing and clarity:

• Grant confirmed before year end → may be recognised
• Grant monies received but not yet fully used → some may need to be carried forward into the next year

What about small nonprofits?

Here’s the good news:

👉 Most Tier 4 organisations are fine with cash accounting.

In many cases, it’s enough to:

• Keep things on a cash basis
• Add simple notes for anything important (like a confirmed grant)

However, accrual concepts still come up — especially when thinking about:

• Unspent funding
• Related party transactions

The Good Numbers take

You don’t need to become an accountant to understand accruals. For most groups:

• You’ll only deal with a small number of adjustments at year end
• Your accountant or bookkeeper can guide you
• And tools like the Good Numbers app help flag what might need attention