The short version: Traditional accounting (also called accrual basis) records income when you invoice and expenses when you’re billed, regardless of when money actually changes hands.
How is it different from cash basis?
Cash basis counts money when it arrives or leaves your account. Traditional accounting counts it when the transaction happens, even if payment comes later. An invoice sent in March counts as March income even if you’re paid in May.
Who uses it?
Larger businesses and those over the cash basis threshold. Some businesses choose it because it gives a more accurate picture of performance, especially if there’s a gap between doing work and getting paid.
Which should you use?
Most small sole traders use cash basis because it’s simpler. Traditional accounting makes sense if you have significant amounts owed to you or by you at year end, or if you’re required to use it.
Not sure which accounting method suits your business? We can advise on the best approach.
