How do I choose between cash basis and accrual accounting software?

Updated October 2026 · How we answer

Understand the Difference

Cash basis accounting is simpler: you record a sale when you receive payment and an expense when you pay it. Accrual basis accounting records revenue when you invoice a customer and expenses when you receive a bill, regardless of when cash moves.

Accrual gives a more accurate picture of profitability over time, especially if you carry inventory or have long payment terms. Cash basis is easier to manage and often sufficient for sole proprietors and very small businesses.

What Your Software Needs

Most accounting software supports both methods, but some are better at one than the other. QuickBooks Online, for example, lets you run reports on either basis, but you must set up your accounts correctly. Xero also supports both.

If you need accrual, look for features like accounts receivable, accounts payable, and the ability to generate accrual-based reports. If you're cash basis, you can often use simpler tools and avoid complex balance sheet accounts.

• Cash basis: simpler, no AR/AP tracking
• Accrual basis: better for inventory and matching revenue to expenses
• Check if software allows switching between methods
• Consider your tax filing requirements

When to Switch

Many businesses start on cash basis and switch to accrual as they grow, when they need a loan, or when required by the IRS (e.g., businesses with over $25 million in gross receipts, though exceptions exist). Switching usually requires an adjustment to retained earnings.

Talk to your accountant before switching. They can help you decide based on your industry, revenue, and goals. The software itself is rarely the deciding factor—it's your business needs.

From our shops