Cash vs accrual in QuickBooks Online is one set of transactions shown two ways. Accrual basis counts income when you invoice and expenses when you are billed. Cash basis counts both when money moves. The basis you are looking at is printed under the report title, and the default comes from Settings, then Account and settings, Advanced, Accounting; any report can be switched at the top. Most businesses this size file taxes on cash and should run the business on accrual, so the bookkeeper's close and the CPA's return will differ, and both are right. The problem starts when the owner does not know which one is on the screen.
Two views of one set of transactions
QuickBooks does not keep two sets of books. Every invoice carries the date it was raised and the date it was paid, every bill the date it arrived and the date you paid it, and a report simply chooses which date to count. That choice is all that cash versus accrual means.
Accrual basis, in Intuit's own words, shows income regardless of whether your customers have paid your invoices, and expenses regardless of whether you have paid all your bills. The invoice counts on its date. The bill counts on its date.
Cash basis counts income on the day the customer's payment lands and expenses on the day yours leaves. An invoice sent on 28 March and paid on 22 April is March income on accrual and April income on cash.
The default for every report lives at Settings, then Account and settings, Advanced, then Accounting, where the method is chosen from a short list. Any report can override it: the Accounting method toggle sits near the top of the P&L and balance sheet. Intuit's help page warns that once you change the method, "accounts and balances in your reports might show up differently". The line under the report title says which one you got.
A worked month, both ways
On the tenth of April, the bookkeeper of a 27-person commercial cleaning company closes March. The company invoiced $84,300 and collected $61,200, some of it from February invoices. It received $22,000 of supplier bills and paid $14,500 of them. Payroll of $31,400 and rent of $6,800 went out in the month and belong to the month, so they are the same on both bases.
| Line | Accrual basis | Cash basis |
|---|---|---|
| Income | $84,300 | $61,200 |
| Supplier costs | $22,000 | $14,500 |
| Payroll and rent | $38,200 | $38,200 |
| Net income | $24,100 | $8,500 |
The same month is a $24,100 profit or an $8,500 one, and the $15,600 between them is $23,100 of invoices customers had not yet paid, less $7,500 of bills the company had not yet paid. Nothing is wrong. The accrual figure says what the company earned from the work it did in March. The cash figure says what landed. A QuickBooks Community thread from October 2022 has an owner who files on cash asking why the accrual P&L "overstates the revenue", and it does not; it counts the March work rather than the March checks. If the accrual number is the one you manage on, the $23,100 is the line to chase, and the AR aging report is where it is listed customer by customer.
What changes on cash basis, and what does not
The P&L is the report owners read. The balance sheet moves more. On a cash-basis balance sheet, accounts receivable and accounts payable fall to zero or close to it, because an unpaid invoice is not income yet and an unpaid bill is not a cost yet. Bank balances, loans, equipment and equity are the same on both. So the cash-basis balance sheet tells you what you have and what you owe the bank, and hides the $23,100 customers owe you.
Some things touch both views. A journal entry that hits a balance sheet account and an income or expense account together affects cash and accrual reports alike, which is why a bookkeeper's adjusting entries show up wherever you look. And a Community thread notes that the statement of cash flows in QuickBooks Online defaults to accrual, which sounds wrong and is not: the cash flow statement starts from accrual net income and works back to the change in cash.
The toggle has a limit worth knowing. If the bookkeeper never enters bills into QuickBooks and simply categorizes payments from the bank feed, there are no bill dates to accrue, and the accrual P&L is a cash P&L for expenses whatever the header says. In that file the two views agree, and the agreement means the accrual view is not real.
Which basis for which job
The CPA files on cash if the business is allowed to, because cash defers tax on the invoices you have sent and not collected. The allowance is the IRS gross receipts test under section 448(c), which Revenue Procedure 2025-32 sets at average annual gross receipts of $32 million or less for tax years beginning in 2026. Nearly every 25-to-50-person business is under it. What the IRS does require, per Publication 538, is that you use the same method consistently on the return and get approval, on Form 3115, to change it. That is a rule about the tax return, and it says nothing about which view you read in April.
The bookkeeper closes on accrual because that is the only view that shows a month's work against a month's costs, and because a bank or a buyer will ask for it. Fit Small Business, which walks through the report in its June 2025 update, recommends accrual "for management purposes" while noting most small businesses need cash-basis statements for the return. That is the two-set-of-views reality: one set of transactions, read on cash by the CPA once a year and on accrual by everyone else every month.
Common advice says to set the default to cash so the books match how you file. We would not. It makes the P&L look like the bank account and hides the receivables and payables that decide whether you make payroll in six weeks. Leave the default on accrual and let the CPA flip the toggle in January. The full case for that is in why net income doesn't match your bank balance.
The handoff from bookkeeper to CPA
At year end the CPA takes the accrual books and converts them. In practice that means running the December reports on cash basis and posting the tax adjustments as year-end entries.
The January P&L often looks strange. If the CPA's adjusting entries are dated 31 December and posted in February, the December close you read in January is not the December that ends up on the return. Ask the bookkeeper whether the year is closed and whether the CPA's entries are in.
The return and the management reports will also show different profit for the year, and someone should be able to reconcile the two on one page: accrual net income, less the change in receivables, plus the change in payables, plus or minus depreciation and the tax-only items, equals taxable income. If nobody can produce that page, raise it before the terms of the month-end close are renegotiated for next year.
Three files, three defaults
An owner with three companies has three QuickBooks Online files and three Advanced settings pages. In our experience it is common for one file to default to cash and the other two to accrual, usually because different people set them up. Add the three P&Ls together and the total is a number on no basis at all.
The tax side has its own wrinkle. For the gross receipts test, the IRS aggregates the receipts of businesses under common control, so three companies you own are measured together, not one by one. At $32 million that rarely bites at this size, but the rule exists, and which companies count as one is a question for your CPA.
Navigator states the basis beside every figure it shows, per company and combined, and an owner can ask what a month looks like on cash and get the figure the bookkeeper would get from the toggle, with the invoices and bills that make up the gap listed underneath. That is on every plan, it reads QuickBooks Online read-only, and it does not change the default in any file.
The one-minute check
Open the P&L for last month and read the line under the title. Switch the accounting method at the top and read net income again. Write both numbers down. If the gap between them is bigger than a month of expenses, ask the bookkeeper what is in it, because the answer is either a receivables problem, a payables problem, or a file where bills are not being entered. Then check the other two companies. The check cannot tell you which basis is right, because both are, and it cannot fix a file where the dates are wrong. It tells you which number you are looking at. Reading the P&L properly starts there.
Questions owners ask
How do I know if my QuickBooks Online is set to cash or accrual?
Open any P&L or balance sheet and read the line under the title, which says Cash basis or Accrual basis. The default for every report is at Settings, then Account and settings, Advanced, Accounting method. Anyone can switch a single report at the top without changing the default, so check the header every time rather than assuming.
Which is better for a small business, cash or accrual?
Accrual for running the business, because it shows the work done and the bills owed whether or not money has moved. Cash for the tax return, if you are under the IRS gross receipts test, because it defers tax on invoices not yet collected. Most businesses with 25 to 50 staff use both, one for each job, and the CPA converts at year end.
Why does my P&L show different numbers on cash and accrual?
Because the two views count the same transactions on different dates. Accrual books an invoice when dated; cash books it when paid. The difference in a month is the change in what customers owe you less the change in what you owe suppliers. A growing business usually shows more profit on accrual; one collecting old invoices shows more on cash.
Can I file taxes on cash basis if my QuickBooks is on accrual?
Yes. QuickBooks Online holds the dates for both views, so the CPA runs the year-end reports on cash basis and files from those while the bookkeeper keeps managing on accrual. What the IRS requires is that you use the same method on the return each year; changing it needs Form 3115, per Publication 538. Changing a QuickBooks setting is not a change of method.
Does the balance sheet change on cash basis in QuickBooks?
Yes, and by a lot. On cash basis, accounts receivable and accounts payable drop to zero or near it, because unpaid invoices and unpaid bills do not exist yet in a cash view. Bank, loan and fixed asset balances stay the same. So a cash-basis balance sheet shows what you have and owe the bank, and hides what customers and suppliers owe and are owed.
Related
The receivables that make up most of the gap are laid out customer by customer in the AR aging report explained. What happens to the other statement when the basis changes is part of how to read a balance sheet as a business owner. And the basis question belongs on the list in questions to ask your bookkeeper every month.
If you would rather every number came with its basis printed beside it, across all your companies, the trial connects to QuickBooks Online read-only in about fifteen minutes with no card: navigatorhq.ai.
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Published . Last updated . Reviewed by a CFO on the Navigator team.