Who can use the cash basis of accounting for tax purposes?
Accounting methods for business incomeThe amounts you include as assessable income in any income year depends on if you account on a cash or accruals basis.On this pageAccounting m
Accounting methods for business income
The amounts you include as assessable income in any income year depends on if you account on a cash or accruals basis.
On this page
- Accounting methods
- Cash basis
- Accruals basis
Accounting methods
The amounts you include as your assessable income in any income year depend on whether you account for your income on a cash basis or accruals basis. Don't confuse these 2 accounting methods with the 2 types of GST accounting methods (cash and non-cash).
You need to account for all transactions within an income year using the same method.
Cash basis
If you account for your assessable income on a cash basis you:
- include payments you received during the income year, even if the work was done in a different income year
- don't include amounts where the work was done, but you did not receive payment during the income year.
When you complete your tax return, you may have to reconcile any unpresented cheques to remove them from your income or deductions if you had previously included these amounts.
Accruals basis
If you account for your assessable income on an accruals basis, you include all income earned for work done during the income year. This is even if you hadn't received payment by the end of the income year.
Example: cash versus accruals basis
Dimitris manages his own business as a carpenter. He completes a contract in May 2022 worth $7,240 (in the 202122 income year). His client pays the invoice on 10July 2022 (in the 202223 income year).
If he uses the:
- cash basis method he includes the $7,240 (minus any GST) in his assessable income for 202223 income year because he received payment in that income year
- accruals basis method he includes the $7,240 (less any GST) in his assessable income for the 202122 income year because he did the work in that income year.End of exampleThe amounts you include as assessable income in any income year depends on if you account on a cash or accruals basis.Last modified: 01 Jul 2022QC 44456