Cash vs. Accrual Accounting: What Is the Difference?

Accounting can recognise income and expenses when the money moves (cash basis) or when the obligation arises (accrual basis). The choice affects how your results look.

Cash basis accounting

Under the cash basis, income is recorded when you receive the money and expenses when you pay. Nothing is booked until cash actually changes hands.

This method is simple and intuitive, because it mirrors what you see in your bank account. There is little to learn and little to get wrong.

The drawback is distortion. A large invoice paid late can make a good year look empty, or dump two years of income into one period.

It can also hide liabilities. Unpaid bills do not appear until they are paid, so your books may look healthier than they really are.

• Income recorded on receipt.
• Expenses recorded on payment.
• Simple and intuitive.
• Can distort results and hide debts.

Accrual basis accounting

Under the accrual basis, income is recorded when you issue the invoice and expenses when the cost is incurred. Recognition follows the obligation, not the cash.

This matches revenue to the period it belongs to, giving a truer picture of profitability. Each month reflects the work done in that month.

Outstanding invoices appear as receivables and unpaid bills as payables, so you see what you are owed and what you owe.

Accrual is the professional standard. It is what proper double-entry bookkeeping is built on.

• Income recorded on invoicing.
• Expenses recorded when incurred.
• Shows receivables and payables.
• Gives a truer profitability picture.

What the difference looks like

Imagine you invoice CHF 10,000 in December and are paid in January. On a cash basis the income lands in January; on an accrual basis it belongs to December.

The same applies to expenses. A bill received in December but paid in January is a December expense under accrual accounting.

Over a full year the totals converge, but within a period the two methods can show very different results. Timing is everything.

This timing matters for tax, for decisions and for understanding whether your business is actually profitable month to month.

• Invoice in December, paid in January.
• Cash basis: income in January.
• Accrual basis: income in December.
• Totals converge over a full year.

What Switzerland expects

For proper double-entry accounting, accrual is the norm. If you are required to keep full accounts, use the accrual basis so your statements reflect reality, not just cash timing.

Accrual accounting is the standard for tax and for any meaningful financial reporting. A fiduciary will prepare your figures this way.

Small businesses on a simplified single-entry method may effectively use a cash approach, recording receipts and payments as they happen.