What is the difference between cash and accrual books?
Timing. Cash books record income on the day the money lands and an expense on the day it's paid. Accrual books record income when it's earned and an expense when it's incurred, whatever the payment date. IRS Publication 538 describes the two methods that way and calls them the most commonly used accounting methods.
Say a Draper house painter finishes a job on June 28 and the customer pays on July 6. Cash books put that income in July, while accrual books put it in June and hold the invoice in accounts receivable until the payment arrives.
| Question | Cash books | Accrual books |
|---|---|---|
| When income is recorded | When the payment arrives | When the income is earned |
| When an expense is recorded | When the bill is paid | When the expense is incurred |
| An unpaid customer invoice | Not counted as income until paid | Shown in accounts receivable |
| An unpaid supplier bill | Not counted as an expense until paid | Shown in accounts payable |
| What the month-end report shows | Money that moved in and out that month | What was earned and owed that month |
| Monthly upkeep | Lighter, mostly bank and card entries | Heavier, with open invoices and bills to track |
The IRS and Draper City pages cited here were checked in October 2026; the last two table rows are bookkeeping practice, not IRS rules.
Which method do many small businesses use?
Many use the cash method, especially when there's no inventory. IRS Publication 334, the 2025 tax guide for small business, says most individuals and many sole proprietors with no inventory use the cash method because they find cash method records easier to keep. That could describe a tutor or a one-person handyman business run from a Draper home, if customers pay soon after the work is done.
When does the IRS require accrual?
The two main cases for a small business are inventory and certain corporations. Publication 334 says that if an inventory is necessary to account for your income, you generally must use an accrual method for sales and purchases, unless you are a small business taxpayer. A small business taxpayer can choose not to keep an inventory, though the method used still has to clearly reflect income.
Publication 538 says a C corporation, and a partnership with a C corporation among its owners, generally can't use the cash method unless it meets the gross receipts test or another exception, such as a qualified personal service corporation, applies. For tax years beginning in 2026, IRS Revenue Procedure 2025-32 says a corporation or partnership meets that test if its average annual gross receipts for the three prior tax years don't exceed $32,000,000.
| Your situation | Usual starting point | Where it comes from |
|---|---|---|
| Sole proprietor with no inventory | Cash books | IRS Publication 334 |
| Business that sells goods from stock | Accrual for sales and purchases, unless a small business taxpayer chooses not to keep an inventory | IRS Publication 334 |
| C corporation over the 2026 gross receipts test | Accrual books, unless an exception such as a qualified personal service corporation applies | IRS Publication 538 and Revenue Procedure 2025-32 |
| Owner who wants month-end numbers showing who owes what | Accrual books, if your tax professional agrees | Bookkeeping practice, not an IRS rule |
| Owner who mainly watches cash in and out | Cash books | Bookkeeping practice, not an IRS rule |
Do the books have to follow the tax method?
For the books you file from, yes. Publication 334 says you must use the same accounting method to figure your taxable income and to keep your books, and the method has to clearly show your income. Some businesses that file on the cash method also want accrual-style reports for a lender or for planning, and how those reconcile back to the return is a question for your tax professional.
Publication 538 allows a combination of methods that clearly reflects income and is used consistently, but cash for income means cash for expenses.
A cash-basis business can still keep a running list of open invoices beside the books. That list doesn't change the method. It tells you who to chase, and the guide to unpaid invoices covers how to work through one.
Not sure which books you've been keeping?
Book a free call with Cara about where your books stand, then get a quote.
What happens if a Draper business switches methods?
It generally takes IRS approval and a clean cut-off in the books. Publication 334 says a change in your overall method, such as from cash to accrual, generally needs IRS approval requested on Form 3115, and a user fee may apply. Publication 538 adds that a C corporation, or a partnership with a C corporation among its owners, that fails the gross receipts test must change to an accrual method for that tax year, unless another exception applies, such as a qualified personal service corporation.
On the bookkeeping side, the switch date is where the work is. Every invoice customers still owe and every bill still unpaid on that date has to go into the books, or the first accrual month starts out wrong. If the cash books were behind before the change, catching them up first makes that list far easier to build.
Where does a Draper license renewal fit in the books?
It's a small, real example of the timing gap. Draper's licensing instructions say that once a renewal application is submitted and reviewed, the city emails the owner to pay any applicable fees, and owners should allow one week of processing time. On cash books the fee goes in on the day it's paid. On accrual books, ordinary bookkeeping practice records it when the city bills it, and some owners spread it across the months the license covers.
The Draper bookkeeping page has more on the city's licensing records.
Getting the books set up for the method you choose
Inkdrop Bookkeeping is based in West Jordan, a short drive from Draper, and Draper businesses can work with Inkdrop by phone and email. Its monthly bookkeeping keeps the books current each month, and its accounting services cover month-end close and recording accruals so income and expenses land in the right month.
The choice of method for tax purposes stays with your tax professional. For the books, call (801) 448-3672 or use the contact page to set up a free call with Cara, and Inkdrop quotes once it's clear how many accounts and transactions are involved.
Talk to Cara about your Draper books
Call (801) 448-3672 or email [email protected] to set up a free call.
