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Cash and Accrual – will there be Debtors (Accounts Receivable – AR) and Creditors (Accounts Payable – AP)?


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Cash basis accounting companies should only be recognising revenue and expenses when the cash is received and paid if their books are reporting on a cash basis. In this case, the debtors and creditors should not be on the balance sheet. If their books report on an accrual basis, which provides a more accurate picture of their financial condition, then their balance sheet will include these accounts.

Accrual basis accounting companies, recognise revenue and expenses when the transaction occurs, not when paid. Accrual accounting companies that are taxed on a cash basis, will also have this account on their balance sheet; however, an accrual to cash adjustment will be made at year end for tax reporting purposes. The balance in this account at year end will be reported as a book/tax difference on the tax return.

There are circumstances where liabilities would be on the balance sheet of a cash basis (per books) company. For example, a loan that the company took for the acquisition of fixed assets. I would ask the company’s tax agent for guidance on each individual situation though just to make sure.

If using cash accounting, the adjustment at the end of the year is to make a General Journal entry that zeros out Debtors/AR –  
Debit Sales
Credit Accounts Receivable.
If you don’t make this Journal Entry, your Sales will be overstated on your Income Statement.

The same is made for Creditors/AP –

Credit Purchases/Cost of Sales

Debit Accounts Payable


Author: Account keeping plus (Business accounting software

Administration, Bookkeeping and Compliance for small business, and Self-Managed Super Funds (SMSF) Training, trouble-shooting, or we can do the books and payroll for you! Self Managed Superannuation Fund Service Provider, Free support 30 min call 0407 361 596 Australia (+61 drop 0 from overseas) MYOB Certified Consultant, Reckon/QuickBooks Professional Partner.

2 thoughts on “Cash and Accrual – will there be Debtors (Accounts Receivable – AR) and Creditors (Accounts Payable – AP)?

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