Original post here
Confused about cash vs accrual accounting? This guide breaks down both methods with real examples for Canadian businesses. Understanding how revenue and expenses are recorded can help you make smarter financial decisions - discover which bookkeeping approach is right for your business, and why it matters more than you think.
What is cash accounting?
Cash Basis = You record money when it moves.
Revenue is counted when it's received; expenses are counted when they're paid.
The perks:
- Super simple
- Bank balance = what’s real
- Easier tax prep
The catch:
- Doesn’t show what's owed to you
- Can make you look cash-rich (or broke) at the wrong time
- Can’t track deferred income or project profitability
Cash basis example
You're a web design agency.
- You charge $30K for a full rebrand project
- You bill upfront in January
- You deliver the work across Jan-Mar
You’re on cash accounting. Here’s how it looks:
What this means
Your books say January was amazing.
But in reality, you're working hard the entire quarter.
So if you:
- Want to track monthly profit margins
- Have a team on payroll
- Or need steady financial reporting...
Cash basis might leave you flying blind.
February and March... dead months.
What is accrual accounting?
Accrual Basis = You record money when it is earned.
Revenue is counted when it's delivered; expenses when they are incurred.
The perks:
- Matches income to effort
- Smooths out reporting
- Helps you track profitability accurately
- Required for investors, banks, boards
The catch:
- More setup and bookkeeping work
- Can feel disconnected from your cash balance
- You'll need to track receivables and payables
Accrual basis example
Same setup.
- You charge $30K for a rebrand project
- Paid upfront in January
- Work delivered Jan-Mar
You’re on accrual accounting. Here’s how it looks:
What this means
You see revenue when the work is done, not just when money hits the account.
This gives you:
- Consistent monthly reporting
- Easier client-level reporting
- A clearer financial story for decision-making
Downside:
You’ll need better bookkeeping habits.
Which one should you choose?
Cash might work if:
- You’re a freelancer or small team
- You get paid quickly and upfront
- You don’t need deep financial reporting
Accrual might be better if:
- You have retainers or long-term contracts
- You want to track profitability monthly
- You’re scaling, hiring, or reporting to investors
Want more insights like this?
Join 1,000+ founders who get tips and insights like this straight to their inbox. 👇
