Published November 10, 2026
by Softtech Financials
5 min read
Two businesses can make the same sales and incur the same costs and still report different profit for a month, depending on the accounting method they use. Understanding the two main approaches helps you read your own numbers properly.
Cash basis
Under cash accounting you record income when money is received and expenses when money is paid. It is simple and closely follows your bank balance, which is why many very small businesses start here.
Accrual basis
Under accrual accounting you record income when it is earned and expenses when they are incurred, regardless of when cash moves. An invoice raised in March is March revenue even if the customer pays in May. A bill for March services is a March expense even if you pay it in April.
| Cash basis | Accrual basis | |
|---|---|---|
| Income recorded | When cash is received | When earned |
| Expenses recorded | When cash is paid | When incurred |
| Receivables and payables | Not recorded | Recorded on the balance sheet |
| Complexity | Lower | Higher |
| Picture of performance | Follows cash movements, which can be uneven | Matches revenue and costs to the same period |
A simple example
A business delivers services worth PKR 100,000 in June and is paid in July. On a cash basis, June shows no revenue and July shows PKR 100,000. On an accrual basis, June shows PKR 100,000 and July shows no revenue from that job. The amount is the same; the timing is different.
Which should you use?
- Financial statements prepared under IFRS are prepared on the accrual basis (cash flow information is presented separately).
- If a lender, investor, regulator or auditor requires statements under a recognised framework, accrual accounting is the expected approach.
- Very small businesses with simple transactions may keep cash-based records day to day, but still need accrual figures for formal reporting.
- Tax law may allow or require specific methods. Confirm the current position with FBR or your adviser.
Making the transition
Moving from cash to accrual means recording what customers owe you and what you owe suppliers at each period end, along with items such as prepaid expenses. It is easier to set up early than to reconstruct. Our bookkeeping service can help you set up the records and our reporting support can help when statements need to follow a framework. Contact us to discuss it.
Please note: This page is general information, not tax, legal or investment advice. Rules and thresholds change, so confirm the current position with the relevant authority or a qualified adviser before you act.