Cash vs accrual accounting: what freelancers should use
Most solo freelancers default to cash accounting without ever deciding to — it's simply the intuitive way to track money. But knowing the alternative, and when it matters, helps you avoid confusion as your business grows.
Cash accounting: record it when money moves
Under cash accounting, you record income when you actually receive payment, and expenses when you actually pay them — not when the invoice was raised or the bill was received. This is simpler to track and matches your actual bank balance closely, which is why most individual freelancers use it by default.
Accrual accounting: record it when it's earned or owed
Under accrual accounting, you record income when you invoice (regardless of when you're paid) and expenses when you incur them (regardless of when you pay). This gives a more accurate picture of your business's actual performance in a given period, independent of payment timing delays.
Why the difference matters
If you invoice a large project in March but get paid in April, cash accounting shows that income in April's numbers, while accrual accounting shows it in March — which can meaningfully shift how a given month or quarter looks, especially with large, lumpy freelance income.
Which should you use?
For income tax purposes, presumptive taxation under Section 44ADA is generally based on amounts actually received during the year, which aligns naturally with cash accounting — most solo freelancers using presumptive taxation don't need to formally adopt accrual accounting at all. It becomes more relevant if you're maintaining detailed books of account (opting out of presumptive taxation) or running a business with employees and more complex operations.