Cash basis vs accrual basis of accounting
1 min read
Updated 30 Sep 2026
3 views
AI summary
Two ways to decide when income and expenses are recorded, and which one you must use.
4 sections
The difference
| Cash basis | Accrual (mercantile) basis | |
|---|---|---|
| Income recorded | When money is received | When it is earned (invoice raised) |
| Expense recorded | When money is paid | When it is incurred (bill received or service used) |
| Shows debtors/creditors | No | Yes |
| True profit picture | Weak | Strong |
Example
You invoice ₹1,00,000 in March, and the customer pays in April.
- Cash basis: income in April (next year).
- Accrual basis: income in March (this year).
Who must use accrual
- Companies must use accrual (Companies Act, section 128).
- GST is due on invoice or supply, which follows accrual timing anyway.
- For income tax, a business can follow cash or mercantile, but must do it consistently. Most businesses use mercantile.
In practice
Hisab Central works on accrual. Sales and purchase bills create debtors and creditors, and year-end adjustments cover outstanding and prepaid items.
PreviousInventory valuation: FIFO and weighted average Next in Accounting Concepts Audit trail (edit log): the rule for companies
Was this guide helpful?