Accrual Basis vs. Cash Basis

There are two ways to record transactions, and the difference completely changes how the financial statements look.

Cash basis

Records a transaction only when cash actually moves — in or out. Simple, but it can paint a misleading picture: if a company sells EGP 1,000,000 of goods on credit in December but collects the cash in February, cash-basis accounting won’t record that revenue until February — even though the sale actually happened in December.

Accrual basis

Records a transaction when it happens economically, not when cash moves. Revenue is recorded when the service is delivered or the goods are shipped (even if cash arrives later), and an expense is recorded when it’s incurred (even if it’s paid later). This is the matching principle: match revenues with the expenses that helped generate them, in the same period.

Both IFRS and US GAAP require accrual-basis accounting for official financial reporting, because it reflects a company’s true economic performance far more accurately.

	Cash Basis	Accrual Basis
Revenue recorded	When cash arrives	When goods/services are delivered
Expense recorded	When cash is paid	When the expense is incurred
Required under IFRS/GAAP?	No	Yes

Try it yourself: record the entries

Rayan Store just opened this month. Below are 5 transactions from its first month — for each one, choose which account should be debited and which should be credited. Watch how the trial balance below balances mechanically (every debit has a matching credit of the same amount) — but mechanical balance alone isn’t enough, you also need to pick the correct accounts.

Owner injected cash capital into the store

200,000

Debit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent ExpenseCredit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent Expense

Purchased inventory for cash

60,000

Debit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent ExpenseCredit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent Expense

Sold goods on credit to a customer

50,000

Debit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent ExpenseCredit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent Expense

Paid store rent in cash

8,000

Debit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent ExpenseCredit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent Expense

Collected part of the customer's balance in cash

20,000

Debit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent ExpenseCredit— choose —CashAccounts ReceivableInventoryEquipmentAccounts PayableCommon StockSales RevenueRent Expense

Trial Balance (updates live)

Account	Debit	Credit
Total Debit / Total Credit	0	0

Ready to apply this to a full month of transactions yourself in Excel? Head to the case study.