When I lodge the first BAS for a client or when I set them up on accounting software such as MYOB or Xero – I ask them, do you report on cash or accrual basis? The common response I get is *blank look* “Huh?!”…
So here is the difference:
Cash Basis: simply means you report the GST when the cash hits or leaves you bank account. If you invoiced $10,000 for the March Quarter (i.e. 1 Jan - 31 Mar) but only $5,000 was paid – you report GST on the $5,000.
Accrual Basis: the invoice date is paramount. You pay GST on the $10,000 invoiced for the quarter in this example. You are reporting on ACCRUED income and expenses at a certain date. The income you WILL receive but have earned and the expenses you WILL pay but do owe. This can be handy when you are fitting out a shop or incurring large expenses that are being paid outside the period such as progress payments or capital purchases.
Clear as mud, right?! Don’t worry – I am passionate about education and teaching my clients what it all means. At Taste.E we anticipate these sorts of things and breakdown your BAS for you. We’ll even customise your Chart of Accounts so you can track what YOU want to track as a business owner. Want to book your free consultation before the end of June in time for your next BAS? Click Here to get in touch.