Accrual Basis – Is when bills have been received and billed but have not been paid

Cash Basis – Is when bills and Invoices have been paid

Cash Basis Reporting is based on revenue that is recognized when received; expenses when paid. For Example, the financial statements are not impacted until an invoice is paid (revenue) or a check is disbursed(expenses). Only the profit and loss(income statement) is impacted, not the balance sheet. 

Cash Basis Reporting:

Accounts Receivable - When Invoices are not paid. Ex. (Invoices for clients that have not been paid or any outstanding invoices)

  • Here's an example of a Profit and Loss Report viewed on Cash Basis:

As you can see, the income section has no funds because no invoices have been paid yet by the client but as you can see for the Total Expenses it is 1,000.00 which is for Accounts Payable - bills that the firm owes such office expenses.