Glossary
What is cash basis accounting?
Cash basis against accrual on one real month: what each counts, where they part ways, and how to see the cash side when your books are on accrual.
Updated
In short
Cash basis accounting records income when money is received and expenses when money is paid. SimpleERP keeps books on the accrual basis; its cash flow report shows money in and out by month.
Cash basis accounting records income only when money is received and expenses only when money is paid. Unpaid invoices and unpaid bills are left out of the books until they are settled. It is simple and close to the bank balance, but a month's profit can swing with collection dates, and it shows nothing about who owes the business money.
Cash basis accounting: a worked example
In September 2026 Lakshmi Steel Furnitures invoiced ₹3,39,400 of sales before GST and was billed ₹1,73,300 for purchases. Customers paid ₹3,05,000 against invoices during the month, and it paid suppliers ₹1,58,000.
| September 2026, before GST | Cash basis | Accrual basis |
|---|---|---|
| Sales counted | ₹3,05,000 received | ₹3,39,400 invoiced |
| Purchases counted | ₹1,58,000 paid | ₹1,73,300 billed |
| Customers still owing at month end | Not recorded | ₹34,400 more in receivables |
| Suppliers still unpaid at month end | Not recorded | ₹15,300 more in payables |
When does the cash basis mislead?
When collections bunch up. If Ravi Stores pays a ₹59,000 September invoice on 15 October, cash-basis books show a thin September and a fat October, though the work was done in September. Under accrual accounting the sale stays in September and October shows only the receivable turning into cash.
FAQ
Questions, answered
Who can use cash basis accounting in India?
Under the Income Tax Act a business other than a company may choose the cash or the mercantile system and must use it consistently. Companies must use accrual. Many professionals use cash. Your CA should confirm what suits your business and its audit.
Is cash basis simpler than accrual?
To keep by hand, yes, because you only record money that moved. In software that posts from invoices and bills, accrual costs no extra effort and also gives you receivables, payables and ageing.
Can SimpleERP show profit on a cash basis?
SimpleERP does not show profit on a cash basis. Its profit and loss statement is on the accrual basis. The cash flow report is the cash-side view: it shows money in and out of your cash and bank accounts for any period, grouped by what it was for.
Does GST let me pay tax only when the customer pays?
For most supplies of goods, no. GST is generally due on the invoice or supply date, whatever basis your books use, so a cash-basis business still has to track unpaid invoices for GST.
Related
Keep reading
Accrual accounting
Recording income when earned and expenses when incurred, so each month's profit matches the work done in it.
Read moreProfit and loss statement
Income less expenses over a period, from sales to net profit.
Read moreAccounting
A double-entry ledger with journals, bank registers, statements and a lock date.
Read more
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