Should I account for GST on a cash or accruals basis?

The main difference between accounting on a cash or accruals basis is the time when liability to pay GST occurs.

Cash Basis

If you elect to account on a cash basis, then you are liable to pay GST once you have received it from your customers. At the same time, you cannot claim GST credits until you have paid for your products/services. For example, if you invoice a customer on Monday and receive payment on Friday then the income is recorded in your books against Friday’s date. The cash basis is the more common choice for many businesses.

Accrual Basis

On an accrual basis, you have the legal duty to recognise GST once invoiced even though you may not have received or made payment for the goods and services yet. For example, if you invoice a customer on Monday but don’t receive payment that day, you will nonetheless record the income against Monday’s date.

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Updated — Mar 14, 2019