What's the Difference Between Cash and Accrual Accounting for Taxes?

Cash and accrual accounting are two methods of recording income and expenses, and the method you use can affect when you pay taxes on your business income. Under cash basis accounting, you record income when you receive payment and expenses when you actually pay them — which is simpler and usually better for tax planning because you have more control over the timing. Under accrual accounting, you record income when it's earned (even if you haven't been paid yet) and expenses when they're incurred (even if you haven't paid the bill). Most small businesses use cash basis because it's easier to manage and lets you defer income by delaying invoicing or accelerate deductions by paying bills before year-end. Businesses with more than $30 million in average annual gross receipts are generally required to use accrual accounting under current tax rules.