Accounting basics · 5 minute read

Cash or accrual: which fits a contractor?

Cash basis records income and expenses when money actually moves. Accrual records them when the work is earned or the bill is owed. Many small contractors keep cash-basis books, but accrual reports tell a truer story about job profit.

How cash basis works

A deposit hits the bank, it's income. You pay the lumber yard, it's an expense. It's simple and it matches your bank balance, which is why so many small contractors start here.

Where cash basis falls short

Contractors often get paid in chunks: a deposit up front, a draw in the middle, a final payment at the end. On a cash basis, a month with a big deposit looks great and the next month looks terrible, even if the work was steady. Job profit gets blurry when the money and the work land in different months.

How accrual works

Income is recorded when you invoice for the work, and expenses when you receive the bill. That lines income up with the costs of earning it, which makes job-by-job profit far more accurate.

You don't always have to choose

QuickBooks Online can run most reports either way with one setting. Your CPA decides which method your tax return uses. We keep the books clean enough that both views are reliable, and we'll talk through which one to watch month to month.

This article is general information, not tax advice. Your CPA should confirm the right method for your return.