Cash Basis Accounting
Fynance keeps your books on a cash basis. Learn what that means, who it works well for and how it differs from accrual.
Fynance keeps your books on a cash basis: income is recorded when money arrives in your account, and expenses when money leaves it. Fynance does not track Accounts Receivable (money clients owe you), Accounts Payable (bills you have not paid yet) or inventory.
Cash basis vs. accrual basis
| Cash basis (Fynance) | Accrual basis | |
|---|---|---|
| Revenue is recorded | When the client pays you | When you invoice or deliver the work |
| Expenses are recorded | When you pay | When you receive the bill or use the service |
| Unpaid client invoices (Accounts Receivable) | Not in the books until paid | Tracked as an asset |
| Unpaid bills (Accounts Payable) | Not in the books until paid | Tracked as a liability |
| Inventory | Not tracked | Tracked as an asset; cost recorded when the product is sold |
| Best for | Small service businesses that want simple, clear books | Larger companies, businesses with inventory, investor-backed companies |
A simple example
You send a $5,000 invoice on December 20, and the client pays on January 10.
- Cash basis: $5,000 of revenue in January, when the money arrives.
- Accrual basis: $5,000 of revenue in December, when you invoiced.
Who cash basis works well for
- Freelancers, consultants, agencies, creators and other service businesses.
- Businesses that get paid at or close to the time of the sale, for example by Stripe, card or upfront payment.
- Small companies without inventory.
- Owners who want books that mirror their bank accounts and are easy to read.
In the US, most small businesses can use the cash method for their taxes. Larger businesses, above the IRS gross-receipts limit, and some types of companies must use accrual.
When accrual may be a better fit
- You sell physical products and keep inventory.
- You give clients long payment terms, or have large unpaid invoices or bills at year end.
- Investors, lenders or auditors ask for accrual (GAAP) financial statements.
- Your company is above the IRS limit for the cash method.
If any of these apply to you, talk to your accountant before using Fynance as your main books.
What this means in Fynance
- Invoices: an invoice you send counts as revenue only when the payment arrives in your bank or Stripe. Awaiting payment and Overdue on the Invoices page help you follow up; they are not in your reports.
- Bills: record expenses when you pay them. There is no list of unpaid bills.
- Products for resale: purchases are recorded as expenses when you pay for them, for example as Cost of Goods Sold. Stock on hand is not tracked.
- Opening balances: do not include Accounts Receivable, Accounts Payable or inventory (see Opening Balances).
- Reports: your Profit & Loss and Balance Sheet are cash-basis reports. Mention this to your accountant when you share them.
Not sure which method your company uses for taxes? Check last year's tax return or ask your accountant. Changing methods between years may require IRS approval.