Choosing between cash and accrual accounting is one of the most consequential decisions a corporation makes.
This guide breaks down how each method works, when the IRS requires accrual accounting, and what the choice means for your taxes, financial statements, and compliance.
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Cash accounting records revenue when money is received and expenses when money is paid.
Accrual accounting records revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands.
Corporations with average annual gross receipts over $30 million (three-year average) must use accrual accounting under IRS rules. GAAP also requires accrual accounting for financial statements shared with investors, lenders, and creditors.
Corporations under that threshold can choose cash accounting for its simplicity. The choice affects tax timing, reported profitability, and how clearly the business can see its cash position.
