Cash vs Accrual Accounting for GST
When you register for GST in Australia, you choose how to account for it: cash basis or accrual (non-cash) basis. The method you pick doesn't change how much GST you owe — it changes when you report it on your BAS.
This guide covers:
- How each method works, with a worked example
- Who is eligible for cash accounting (the $10 million threshold)
- Pros and cons of each method for different business types
- How to switch methods and what to watch for during the transition
- Common mistakes that lead to incorrect BAS lodgements
Use our BAS Estimator to see how your GST method affects your quarterly payment.
Updated: April 2026
Cash vs accrual GST — at a glance
- Cash basis: Report GST when payment is received or made
- Accrual basis: Report GST when invoice is issued or received (or payment, whichever is earlier)
- Cash eligibility: Aggregated turnover under $10 million
- Default method: Accrual (non-cash) — you must opt in to cash
- Can you mix? Yes — cash for GST and accrual for income tax is the most common setup
- Switching: Change any time via ATO Online Services — no lock-in period
How each method works
Both methods calculate the same amount of GST — 10% on taxable supplies. The only difference is timing: which BAS period the GST falls into.
Cash basis
You account for GST in the BAS period when money changes hands.
- GST on sales: reported when the customer pays you
- GST on purchases: claimed when you pay the supplier
Think of it as "follow the bank statement".
Accrual (non-cash) basis
You account for GST in the BAS period when the invoice is issued or received, or when payment occurs — whichever is earlier.
- GST on sales: reported when you issue the invoice
- GST on purchases: claimed when you receive the supplier's invoice
Think of it as "follow the invoice date".
ATO Reference
Choosing an accounting method
The ATO's overview of cash and non-cash accounting for GST, including eligibility and how to change methods.
View on ATO websiteSide-by-side comparison
| Feature | Cash | Accrual |
|---|---|---|
| When you report GST on sales | When you receive payment | When you issue the invoice (or receive payment, whichever is earlier) |
| When you claim GST credits on purchases | When you make payment | When you receive the invoice (or make payment, whichever is earlier) |
| Eligibility | Aggregated turnover under $10 million, or you use cash basis for income tax | Available to all GST-registered businesses |
| Bad debt adjustments needed? | No — you never reported GST on the unpaid invoice | Yes — you must claim a decreasing adjustment after writing off the debt or after 12 months overdue |
| BAS complexity | Simpler — matches bank transactions | More involved — must track invoices regardless of payment status |
| Cash flow impact | You never owe GST on money you haven't received | You may owe GST before customers have paid you |
Worked example: same invoice, different BAS periods
A graphic designer issues a tax invoice on 15 March 2026 for $5,500 inc GST ($5,000 + $500 GST). The client pays on 10 April 2026.
Cash basis result
The $500 GST is reported on the Q4 BAS (Apr–Jun 2026) — the period when payment was received on 10 April 2026.
The March invoice doesn't appear on the Q3 BAS at all.
Accrual basis result
The $500 GST is reported on the Q3 BAS (Jan–Mar 2026) — the period when the invoice was issued on 15 March 2026.
The designer owes the GST before the client has paid.
What this means for you
For a business issuing $50,000/month in invoices with 45-day average payment terms
Up to $6,818 in GST timing difference per quarter
Under accrual, you'd owe GST on roughly 1.5 months of unpaid invoices at any given time. Under cash, that GST liability only hits your BAS after payment arrives — keeping your working capital intact.
Try it yourself
Enter your quarterly sales and purchases to see your estimated GST payable — useful for comparing how timing differences affect your BAS under each method.
Estimate your BASWho can use cash accounting for GST?
You can choose to account for GST on a cash basis if any of the following apply:
- Your business has an aggregated turnover of less than $10 million
- You already account for income tax on a cash (receipts) basis
- You are an endorsed charity, gift-deductible entity, or government school
Above $10 million? You must use accrual.
If your aggregated turnover is $10 million or more and you don't meet one of the other criteria, you must account for GST on an accrual (non-cash) basis. You can apply to the ATO for an exception, but these are rare.
ATO Reference
Identify your accounting basis
ATO guidance on determining which accounting basis applies to your business, including the rules for cash eligibility.
View on ATO websiteAdvantages of each method
Cash basis advantages
No GST on unpaid invoices
If a customer takes 60 days to pay a $11,000 invoice, you don't owe the $1,000 GST until the money actually hits your account. Under accrual, you'd owe it in the quarter you issued the invoice.
Simpler BAS preparation
Your BAS figures can be reconciled directly against your bank statements. No need to track which invoices were issued vs paid during the period.
No bad debt adjustments
If a customer never pays, you never reported the GST in the first place — so there's nothing to adjust. Accrual-basis businesses must formally write off the debt and claim a decreasing adjustment.
Better cash flow alignment
Your GST liability naturally matches your available cash. You collect the money, then you remit the GST — never the other way around.
Accrual basis advantages
Claim GST credits sooner
You can claim input tax credits as soon as you receive a supplier's invoice, even if you haven't paid it yet. On 30-day terms, this can mean claiming credits a full quarter earlier than cash basis.
Matches financial statements
If you already prepare accrual-based profit and loss statements (which most accountants recommend for businesses offering credit terms), using accrual for GST means one less reconciliation difference.
Required above $10 million
Businesses with aggregated turnover of $10 million or more must use accrual. If you're approaching this threshold, switching early avoids a forced transition mid-year.
Better for businesses that pay suppliers quickly
If you pay suppliers on delivery (COD or 7-day terms) but offer customers 30–60 day terms, accrual lets you claim credits on those supplier payments immediately via the invoice date.
Which method suits your business?
The right choice depends on how your business invoices and gets paid. Here's what typically works for common business types:
| Business type | Best fit | Why |
|---|---|---|
| Sole trader / freelancer | Cash | Simpler BAS, GST aligns with bank account, and clients often pay on varying schedules. |
| Tradesperson invoicing on completion | Cash | Payment timing is unpredictable. Cash basis means you're never out of pocket for GST on a job that hasn't been paid. |
| Retail / hospitality (POS sales) | Either | Payment is immediate at point of sale, so both methods produce the same BAS result. Cash is simpler for bookkeeping. |
| Professional services firm (30–60 day terms) | Cash | Long receivables mean you could owe thousands in GST before clients pay. Cash basis protects your working capital. |
| Construction / project-based | Cash | Progress claims and retentions create large timing gaps between invoice and payment. Cash basis prevents GST cashflow strain. |
| Wholesale / distribution (high-volume invoicing) | Accrual | Already using accrual for financial reporting. Matching the GST method reduces reconciliation work and you can claim credits on supplier invoices immediately. |
| Business approaching $10M turnover | Accrual | You'll be required to use accrual above $10M. Switching early gives your bookkeeper time to adapt processes before it's mandatory. |
BAS Estimator
Estimate your quarterly GST payable based on your sales and purchases.
The hybrid approach: cash BAS, accrual tax return
Your GST accounting method is independent of your income tax accounting method. This means you can — and many Australian small businesses do — use cash basis for your BAS (GST reporting) and accrual basis for your annual tax return and financial statements.
Why this combination is popular:
- Cash BAS — you never owe GST before being paid, BAS prep is simpler, and your GST liability matches your bank balance
- Accrual tax return — revenue and expenses are matched to the period they were earned/incurred, giving a more accurate picture of business performance
Your accountant will handle the difference between the two methods when preparing your annual tax return. Most accounting software supports this setup natively — you set the BAS to cash and the P&L reports to accrual.
Bad debts and GST adjustments
How you handle unpaid invoices depends entirely on your GST method. This is one of the biggest practical differences between cash and accrual.
Cash basis
No adjustment needed. You never reported the GST because payment was never received. The unpaid invoice simply never appears on your BAS.
Accrual basis
You already reported and paid the GST when you issued the invoice. To recover it, you need to claim a decreasing adjustment on your BAS. You can do this when:
- You write the debt off as bad in your accounts, or
- The debt has been overdue for 12 months or more
The adjustment goes in your BAS for the period when you write off the debt or become aware it's been overdue for 12 months.
ATO Reference
Division 21, A New Tax System (Goods and Services Tax) Act 1999
Bad debt adjustments for GST
ATO guidance on decreasing adjustments for bad debts, including when to claim and how to report on your BAS.
View on ATO websiteHow to switch GST methods
You can change your GST accounting method at any time — there's no lock-in period. But getting the transition right requires some care.
1Choose the right time
Switch at the start of a new tax period (quarter or month) to keep your BAS clean. You can change your method at any time, but starting fresh at a period boundary avoids splitting a single period across two methods.
2Notify the ATO
Update your GST accounting method through your myGov/ATO Online Services account, or ask your registered tax agent to do it. You don't need ATO approval to switch from accrual to cash if your turnover is under $10 million.
3Handle the transition period
When switching from accrual to cash: any GST you've already reported on unpaid invoices doesn't need to be reported again when payment arrives. When switching from cash to accrual: invoices issued before the switch but unpaid at the switchover date need to be picked up under the new method.
4Update your accounting software
Change the GST reporting basis in your accounting software (Xero, MYOB, QuickBooks). This setting controls how the BAS report pulls figures — if it doesn't match your ATO registration, your BAS will be wrong.
5Reconcile the changeover BAS
Your first BAS under the new method needs extra attention. Check for invoices that could be double-counted or missed during the transition. Your bookkeeper or BAS agent can help reconcile this.
Common mistakes to avoid
Software set to the wrong method
Your accounting software's GST basis must match what you're registered for with the ATO. If Xero is set to accrual but you're registered as cash, every BAS will be wrong — and you may not notice until an ATO review.
Using bank statements for an accrual BAS
If you're on accrual, you can't just add up bank deposits and payments. You need to report based on invoice dates, which means including unpaid invoices issued during the period and excluding payments for invoices from a prior period.
Forgetting transition adjustments
When switching methods, invoices that straddle the changeover date can be double-counted or missed entirely. The most common error is reporting GST twice — once when the invoice was issued (under accrual) and again when payment arrives (under the new cash method).
Mixing methods for income tax and GST without realising
It's perfectly valid to use cash for GST and accrual for income tax — in fact, it's the most common combination for small businesses. But you need to be aware of the difference so you don't confuse the two when preparing your BAS vs your tax return.
Not claiming bad debt adjustments (accrual basis)
If you're on accrual and a customer doesn't pay, you've already remitted the GST to the ATO. You're entitled to a decreasing adjustment once you write off the debt or it's been overdue for 12 months — but many businesses forget to claim it.
Simpler BAS reporting
If your GST turnover is less than $10 million, you're eligible for Simpler BAS reporting regardless of whether you use cash or accrual. Simpler BAS reduces the number of fields you need to complete:
| BAS label | What you report |
|---|---|
| G1 | Total sales for the period (including GST-free sales) |
| 1A | GST on sales — the GST component of your taxable sales |
| 1B | GST on purchases — the GST credits you're claiming |
Whether each figure is based on payment dates (cash) or invoice dates (accrual) depends on your registered method. The Simpler BAS format itself works with both.
Frequently asked questions
Related guides
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