Accrual vs. cash basis: which one your shop should actually use.

Cash basis: record revenue when the money lands, expenses when the money leaves. Accrual basis: record revenue when it's earned (delivered to the customer), expenses when they're incurred (used by you), regardless of when cash moves. For most owner-operators, the tax filing wants one and the daily decisions want the other.

TL;DR

The two methods, defined

Cash basis is the way a kitchen-table business naturally thinks. Money came in? Revenue. Money went out? Expense. The cash flow and the profit & loss are essentially the same statement.

Accrual basis is more rigorous. Revenue is recognised when the work is done, not when payment lands. Expenses are recognised when the resource is consumed, not when the invoice is paid. The cash flow and the P&L are now two different statements that need to be reconciled.

A pithy way to remember the difference: cash basis answers "did the bank balance go up today?" Accrual answers "did the business get richer today?" They often differ.

How the same week looks in each method

Suppose a small bakery has the following week:

• Mon: sold €450 of bread, customers paid in cash and card same day.
• Tue: paid €280 in cash for next week's flour delivery.
• Wed: catered a corporate breakfast for €600, invoice sent, customer will pay in 30 days.
• Thu: rent direct-debited, €1.000 for the month.
• Fri: bought new mixer for €2.400 with 36-month finance, €70/month payments start in 30 days.

Here's how each method sees the week:

Cash basis says the bakery lost €830 this week. Accrual basis says it broke even, near-enough. Which one is true? Both, but they're true about different things. The bakery's bank balance did drop by €830. The bakery as a business essentially broke even.

The cash view is useful: you don't want to be surprised by the bank balance. But it's a terrible way to evaluate whether the business model works. Owners who run only on cash basis ride wild swings — feast weeks followed by famine weeks — and never get a clean read of underlying profitability.

Which one to use, when

The choice depends on what you're asking:

• "Can I afford to pay this invoice on Friday?" Cash basis. The bank balance is the thing.
• "Did this product line actually make money last month?" Accrual basis. You need to match revenue with the costs that produced it.
• "Should I hire a second baker?" Accrual basis. Hiring decisions need a clean read of true profit margin, not bank-balance noise.
• "What's my VAT liability this quarter?" Cash basis usually (rules vary by country). VAT is generally due when invoices are issued or paid, depending on local scheme.
• "How did Tuesday compare to last Tuesday?" Accrual basis. Cash-basis weekly comparisons are dominated by when bills happened to be paid, not by what changed in the business.

For most owner-operators the practical answer is: cash basis for tax filings and short-term cash management, accrual basis for management accounts and decision-making.

Taxes vs. management accounts

These are two different jobs done with overlapping data.

Tax accounts are prepared for the tax authority. They follow whatever rules your country has — cash basis is often allowed for businesses below a turnover threshold (Austria: up to €700k turnover for sole proprietorships; UK: up to £150k under the cash-basis scheme). Above the threshold, accrual is mandatory. Your accountant prepares these.

Management accounts are prepared for you, to run the business. There are no rules. You can use whatever method gives you the clearest read of what's working. For almost every owner-operator I've worked with, that's accrual — because accrual is what tells you whether today made money.

I had a salon owner who switched to accrual for her daily review and stopped being shocked by quarterly tax bills. The bills were always there; she just hadn't been seeing them accumulate.

Running both is not double work if your tool understands the difference. The daily entries are the same; what changes is how they're assembled into reports. The depreciation piece covers one of the bigger accrual-only concepts — spreading a big purchase across years rather than expensing the whole thing on payment day.

How nouz approaches this

nouz runs the daily P&L on accrual logic. Specifically:

1. Revenue is logged on the day the sale happened, regardless of when payment settles (card sales on a Friday at 23:50 still belong to Friday).
2. COGS is recognised at the moment of sale (snapshotted), not on the day you bought the inputs. The €5,40 of wax in the candle gets matched against the €18 sale, on the day of the sale.
3. Fixed costs (rent, salaries, insurance, depreciation on the oven) are sliced into daily amounts and recognised every day — even days you're closed.
4. Variable costs are logged on the day they were used. If you paid €280 for flour on Tuesday for a Friday delivery, the cost shows up on Friday (when the flour starts being consumed), not Tuesday.

The result: your daily P&L shows what the business actually earned that day. The cash flow — what the bank balance is doing — is a separate question, and one most owners check by looking at their bank app, not their P&L tool.

If you'd rather see things on a cash basis, that's legitimate — many owner-operators do. But the moment you're trying to compare days, judge a product line, or decide on a hire, accrual is the lens you want. Start a free trial if you want to see what your last 14 days look like on accrual logic.

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