Choosing Between Cash and Accrual Accounting

Cash accounting tracks money in and out. Accrual accounting tracks economic activity — even when cash hasn't moved. For most growing companies, accrual is the right choice.

When cash accounting works

Very small businesses with simple operations and no receivables or payables exposure.

When accrual becomes necessary

Any business with credit sales, long-cycle revenue, inventory, or institutional investors.

Tax considerations

The Indian Income Tax Act allows both methods — but consistency and disclosure matter.

Reporting clarity

Accrual reporting produces P&Ls that genuinely reflect business performance month over month.