Cash vs Accrual Accounting, GST Cycles and Record-Keeping: A Small Business Guide

Two decisions shape almost everything about how a small business reports its numbers to the ATO: whether you account on a cash or accrual basis, and how often you lodge a Business Activity Statement. Get either one wrong and you can end up paying GST on money you haven't collected yet, or scrambling for a receipt that no longer exists. This article sets out how the choice works, how your GST reporting cycle is determined, and what the ATO actually requires you to keep on file.

Cash vs Accrual: When Does Income Actually Count?

The cash and accrual methods answer a simple question: when does a sale or expense hit your books? Under the cash basis, you record income when you receive payment and expenses when you pay them, regardless of when the work was done. Under the accrual basis, you record income when you earn it (typically when you invoice) and expenses when you incur them, even if cash hasn't moved yet.

For income tax purposes, the method isn't simply a free choice. The ATO's Taxation Ruling TR 98/1 treats "appropriateness" as the test: cash accounting generally suits income that's essentially the product of your own labour or skill, such as many sole trader service businesses, while accrual accounting generally suits businesses trading stock or carrying a more complex debtor/creditor ledger, such as retail or wholesale. The legal basis sits in ITAA 1997 section 6-5, and whichever method you settle on, the ATO expects it applied consistently across a financial year.

The practical difference shows up at year-end. A tradesperson who invoiced in June but wasn't paid until July reports that income in the 2025-26 year under accrual accounting, but not until 2026-27 under cash accounting, a timing gap that can shift which financial year a tax bill lands in.

Cash vs Accrual for GST Specifically

GST has its own version of this choice, separate from your income tax method. Under ATO guidance on choosing a GST accounting method, businesses with an aggregated turnover under $10 million can elect either the cash basis (GST reported in the period you receive or pay money) or the non-cash/accrual basis (GST reported in the period the invoice is issued or received). Businesses at or above the $10 million threshold generally must use the non-cash basis and need the ATO's permission to use cash accounting instead.

How Often You Lodge a BAS

Your GST turnover, not your income tax turnover, sets your BAS reporting cycle. Registration itself becomes compulsory once your GST turnover reaches $75,000 ($150,000 for not-for-profits), and you then have 21 days to register. From there:

Monthly: required once GST turnover reaches $20 million, or if the ATO has otherwise told you to report monthly.

Quarterly: the default cycle for GST turnover under $20 million.

Annually: available only if you're voluntarily registered, meaning your GST turnover sits under $75,000 (or $150,000 for not-for-profits).

Separately, GST turnover under $10 million generally means simplified Simpler BAS reporting; at or above $10 million, full reporting applies. Check both figures each year rather than assuming last year's cycle still fits, since crossing a threshold changes your obligations mid-year.

What Records the ATO Actually Requires

Separately from the accounting method you choose, the law sets a floor for how long records must be kept and what they must show. The ATO's general rule is five years, counted from when you prepared or obtained the record, or completed the transaction, whichever is later. Records tied to a capital or revenue loss need to be kept longer: until five years after the loss is fully used, or the relevant review period ends, whichever comes later.

Adequate substantiation isn't just "keep the receipt." Per the ATO's record-keeping guidance, a record needs to show, at minimum, the date, the amount, a description (a sale, a purchase, wages, rent) and the relevant GST detail. It must stay unaltered and legible, and be in English or readily convertible to English. Digital records are accepted as long as they meet those conditions.

Bringing It Together

Cash versus accrual, your GST reporting cycle, and your record-keeping practices aren't three separate compliance tasks, they interact. The accounting method you pick determines what a "correctly reported" BAS looks like, and your record-keeping needs to support whichever method you use, at the frequency your turnover requires. If you're unsure which combination fits your business, FTC can review your current setup against your turnover and structure and confirm you're on the right method before it becomes a problem at tax time.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.