Cash vs. Accrual Accounting: Effect on Sales Tax

Cash basis and accrual basis accounting determine when you report income and expenses, which directly affects the sales tax you owe for a specific filing period.

• Cash basis: You report income when you receive payment. Sales tax is owed based on the date you receive the money from the customer.
• Accrual basis: You report income when you invoice the customer. Sales tax is owed based on the transaction date on the invoice, regardless of when payment is received.

Example

Suppose you send a customer an invoice for $1,000 in August, with a 6% sales tax rate (total tax due: $60). The customer pays $400 in August and the remaining $600 in September.

• If you use cash basis: You owe sales tax on the actual payments received. You owe tax on the $400 payment in August and tax on the $600 payment in September.
• If you use accrual basis: You owe the full $60 sales tax in August because that is when you created the invoice.

Viewing sales tax by basis

You can see how your sales tax liability changes based on these methods directly in the Sales Tax Center.

1. Go to Taxes and select Sales Tax.
2. In the Sales Tax Owed list, look for the Accounting basis dropdown menu (usually located near the top of the list or in the report settings).
3. Select either Cash or Accrual to view the tax owed for that period.

Note: If you are unsure which accounting method your business uses, or which one is required for your tax filings, consult your accountant.