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3 min 28 sec
0:00
How did the month go?
0:22
Cash basis and accrual
0:53
September, counted twice
1:28
Which one's true?
2:06
Cash or accrual in Beeswax
2:39
Recap and quiz
Accounting 101
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Costs and timing
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Episode 12
Cash versus Accrual
(Two ways of counting the same month.)
Maya's profit and loss says one thing about September and her bank says another. Count the same month on a cash basis and on accrual, and see what each one tells you.
cash basis
accrual basis
receivables
payables
Transcript
0:00
End of September. Maya asks herself a simple question. How did the month go?
0:07
Her profit and loss says four thousand. Her bank account says fifteen hundred. They can't both be right. Can they?
0:15
They can. Welcome to cash versus accrual.
0:22
There are two ways to count a month. The first is cash basis. You record income when the money arrives, and costs when the money leaves. That's it. It's basically your bank statement, with opinions.
0:36
The second is accrual basis. You record income when you earn it, and costs when you incur them, no matter when the money actually moves. That's what we've been doing all series. Invoices, receivables, deposits. All accrual.
0:53
So, Maya's September, counted both ways.
0:57
On accrual: she earned six thousand. The retainer, plus the Fern and Fold launch. Her costs for the month came to two thousand. Profit: four thousand.
1:09
On cash: only three thousand actually arrived. Some clients haven't paid yet. And she paid out fifteen hundred, because the developer's bill isn't due until October. Cash profit: fifteen hundred.
1:23
Same month. Same business. Same Maya. Two different stories.
1:28
So which one's true? Both. They just answer different questions.
1:33
Accrual tells you how the business performed. Did the work make money? Cash tells you whether you'll survive. Can you pay the rent on Friday?
1:42
And here's the trap. A business can be profitable, and still run out of cash. Rich on paper. Hungry in real life. We'll come back to that one. It's important.
1:54
The difference between the two is almost entirely timing. Money you're owed, and money you owe. Receivables and payables. Accrual counts them now. Cash waits.
2:06
In Beeswax, your books are kept on an accrual basis. Finalise an invoice or an expense, and it's counted, whether or not it's been paid.
2:16
For the cash side of the story, look at your bank accounts. And Who Owes Me, and What I Owe, show you exactly what sits in between.
2:25
Some tax systems let small businesses report on a cash basis. For Australian BAS, for example, Beeswax lets you choose cash or accrual. The regional episodes go into the details.
2:39
So. Cash basis counts money when it moves. Accrual counts it when it's earned or owed. Accrual shows performance. Cash shows survival. Watch both.
2:50
Quick one. Maya invoices two thousand in October. The client pays in November. When is it revenue on an accrual basis? And on a cash basis?
3:01
Have a think.
3:04
Accrual: October, when she earned it. Cash: November, when the money arrived.
3:11
Same two thousand. Different month. Now you know why accountants ask which basis. Every time.
3:19
Next time, season three begins. The costs of doing business. Expenses, bills, and the money you owe everyone else.