With the cash method you record income when you receive it and expenses when you pay them. With the accrual method you record income when you earn it and expenses when you incur them, even if the money moves in a later year. IRS Publication 583 (December 2024) describes both. A ProfitDrawer bookkeeping spreadsheet works on a cash basis: an income row counts only once its Paid? column says Yes.
Example: you finish a $800 job on December 20, 2026 and the customer pays on January 8, 2027.
| Method | Year the $800 counts |
|---|---|
| Cash | 2027, when you receive it |
| Accrual | 2026, when you earned it |
Points to know:
- Received includes credited. Under the cash method, income counts when it is credited to your account or made available to you, not only when you spend it.
- Most sole proprietors use cash. It is simpler and matches your bank statement. The 2025 Schedule C instructions say you can generally use the cash method, an accrual method or another permitted method, and you tick your method on line F.
- Inventory. Businesses with inventory generally need an accrual method for purchases and sales, but small business taxpayers are exempt from that requirement.
- Stay consistent. IRS Publication 538 says you must use the same accounting method from year to year.
General information, not tax advice.
Source: IRS Publication 583: Starting a Business and Keeping Records · Updated
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General information, not tax, legal or financial advice. Check the rules for your state and your situation.