Most Canadian business owners eventually hear that corporations need “accrual accounting,” but few actually understand what that means in practice. The difference is not about software or complexity — it is about timing.

Cash accounting records income when you get paid.
Accrual accounting records income when you earn it.

That is the entire difference.

Where people get tripped up is believing accrual accounting requires a full Accounts Receivable workflow. It does not. Accrual simply ensures revenue shows up in the correct fiscal year, even if the customer pays later.

Cash Accounting (what early small businesses use)

Revenue is recorded:

• Only when money is actually received
• Bank deposit = income
• Faster to track, but not always accurate for year-end
• Works fine when payment is immediate

Example:
You mow a lawn today and get paid today.
Cash and accrual are identical.

Accrual Accounting (what corporations are expected to use)

Revenue is recorded:

• When the service is completed or the product is delivered
• Even if payment arrives later
• Gives a clearer financial picture
• Required for proper year-end reporting

Example:
You complete a project on December 29
Customer pays January 5
Under accrual, the income still belongs in December.

The biggest misconception

Accrual does not mean:

• You must issue invoices for everything
• You need a complex AR system from day one
• You must use QBO invoicing to be compliant

It simply means:

• Revenue is recognized in the period the work was done

This can be handled with a simple journal entry at year-end if needed.

When it matters

Accrual matters most when:

• Work and payment fall into different fiscal years
• You have delayed payment terms
• Deposits do not reflect the full revenue earned

It has nothing to do with paperwork — it is about accurate timing.

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