Under the accrual method (Zoho Books default), when you raise an invoice, revenue is recorded immediately even if the customer has not paid. When you receive a vendor bill, the expense is recorded even if you have not paid the vendor yet. This gives a more accurate picture of the business’s financial performance over a period, since it matches income and expenses to the period in which they were earned or incurred.
For GST purposes in India, the time of supply for goods is generally the date of invoice or delivery (whichever is earlier). This aligns with the accrual method, making it the correct approach for most GST-registered businesses.
Under cash accounting, Zoho Books records revenue only when payment is received from a customer and records expenses only when you actually pay a vendor or employee. This method is simpler to understand and means your book profit is always aligned with your cash position. However, it can distort the picture: a business that has done a lot of work in March but collected payment in April will show a loss in March and unusually high profit in April.
Zoho Books stores all transactions in accrual format and generates both accrual-basis and cash-basis P&L and Balance Sheet reports without you having to re-enter data. You select the reporting basis in the report settings. This flexibility is useful when your CA needs accrual financials for annual accounts but you want cash-basis reports for your own daily cash management.
Accrual accounting in Zoho Books records income when invoiced and expenses when billed, regardless of cash movement. Cash accounting records both only when cash actually changes hands. Zoho Books defaults to accrual but supports cash-basis reporting.
Most Indian businesses under GST use accrual accounting because GST liability arises at the time of supply (invoice), not when payment is received. Cash-basis is simpler for very small businesses but may not align with GST or income tax requirements.
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