Guide
Cash or accrual accounting for GST
The difference between the cash and accruals methods and which one suits your business.
Two ways to time your GST
You report GST in the period it is attributable to. Under the cash method, you account for GST when you receive or make a payment. Under the accruals method, you account for it when you issue or receive an invoice, whichever is earlier of the invoice and the payment. The two methods can produce different BAS results in the same period, but over time they add up to the same total.
Cash accounting
Cash accounting is simpler and is often a good fit for small businesses and sole traders. You only pay GST on sales once the customer has paid you. Likewise you claim credits on purchases once you have paid. It helps cash flow because you are not paying GST on invoices you have not collected, which is especially useful if your customers are slow to pay.
Accruals accounting
Accruals accounting follows the invoice dates. You owe GST in the period you issue an invoice even if you have not been paid. Larger businesses, and those with complicated finances, often use it because it matches their management accounts. Some businesses are not eligible for the cash method and must use accruals.
Who can use the cash method?
Generally, you can choose cash accounting if you are a small business entity under the ATO rules, or if you are not running a business and your GST turnover is under the registration threshold, among other cases. Rules change, so confirm your eligibility.
Changing methods
You can switch methods but you need to make transitional adjustments so that GST is not missed or double counted. Take advice before changing.
Choose and be consistent
Pick the method that matches how you run your records and stick to it consistently. Using a hybrid of the two will almost certainly cause errors.
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