--- title: "Cash vs Accrual Accounting in Canada: Which Can You Use?" url: https://www.everstonecpa.com/blog/cash-vs-accrual-accounting-canada description: "Most Canadian corporations cannot choose their accounting method. Who can still use the cash method, the exceptions, and what a mid-year change involves." type: guide updated: 2026-10-06 summary: "Canadian businesses generally have to report income using the accrual method, which recognizes income when earned and expenses when incurred. The cash method is permitted only for farmers, fishers and self-employed commission agents. A corporation reports on the accrual basis for tax purposes." faq_count: 6 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Cash vs Accrual Accounting in Canada Bookkeeping # Cash vs accrual accounting: *which basis your business has to use* By EverStone CPA · Updated September 2026 · 7 min read **Quick answer:** Canadian businesses generally have to report income using the accrual method, which recognizes income when earned and expenses when incurred. The cash method is permitted only for farmers, fishers and self-employed commission agents. A corporation reports on the accrual basis for tax purposes. **Books on the basis the CRA expects?** We keep your books on the correct basis and convert them cleanly at year-end, with bookkeeping from $325 a month. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=monthly#enquiry-form) Want monthly reports that show the real picture, not just the bank balance? See [fractional controller support](https://www.everstonecpa.com/fractional-controller-services). For most businesses this is not a choice. **Rather have a CPA handle this?** A CPA at EverStone replies with a straight answer and a fixed fee for your situation. [Get My Fixed Quote →](https://www.everstonecpa.com/book-online) ## Key takeaways - The CRA’s general rule: you have to report business income using the accrual method. - Farmers, fishers and self-employed commission agents may use the cash method or the accrual method, but not a combination of both. - Accrual means income when earned and expenses when incurred, regardless of when cash moves. - Under the cash method, expenses are deducted when paid, with an exception for prepaid expenses. - Switching methods has a formal process, and switching from cash to accrual requires a written request before the return’s due date. Cash accounting is simple: money in is revenue, money out is expense. Accrual accounting is less intuitive, and almost every Canadian business must use it for tax. Your bank balance is not your profit. ## The general rule Generally, the CRA requires business income to be reported using the **accrual method**. The cash method is a narrow permission for specific businesses. Cash method compared with accrual method | | Cash method | Accrual method | | Income is reported | In the fiscal period you receive it — cash, property or services. | In the fiscal period you earn it, whenever it is received. | | Expenses are deducted | In the fiscal period you pay them, except prepaid expenses. | In the fiscal period you incur them, whether or not paid in that period. | | Who may use it | Farmers, fishers and self-employed commission agents — one method, not a mix. | Everyone else, including every corporation carrying on an ordinary business. | | A corporation’s T2 | No cash-basis election exists for an ordinary operating company. | Prepared on this basis; the tax year is the fiscal period, at most 53 weeks. | | Receivables and payables | Not carried — a December invoice paid in March is March income. | Carried on the balance sheet — the December invoice is December revenue. | **Books kept on a cash basis so far?** We convert them to accrual, keep them that way from $325 a month, and prepare a T2 that matches the statements. See [our bookkeeping](https://www.everstonecpa.com/accounting-services), or [get a bookkeeping quote](https://www.everstonecpa.com/book-online). [Get My Fixed Quote](https://www.everstonecpa.com/book-online) ## What the accrual method means Under the accrual method, you report income in the fiscal period you *earn* it and deduct allowable expenses in the period you *incur* them, whenever the money moves. “Incur” usually means you paid or will have to pay. In practice that means: - An invoice issued in December for work completed in December is December revenue, even if the customer pays in March. - A supplier bill received in December for materials used in December is a December expense, even if you pay it in January. - A deposit received in December for work you will do in the spring is generally *not* December revenue — the work has not been earned yet. That is why a profitable business can be short of cash, a cash-rich month can hide a loss, and receivables and payables sit on the balance sheet. Getting them wrong is one of the costlier [bookkeeping mistakes small businesses make](https://www.everstonecpa.com/blog/bookkeeping-mistakes-small-business). ## Who can use cash-basis accounting in Canada Under the cash method, income is reported when received (as cash, property or services) and expenses when paid, **except prepaid expenses**. The CRA permits it for: - **Farmers** - **Fishers** - **Self-employed commission agents** Either method is allowed, but not both. Everyone else uses accrual. Whether a business uses cash or accrual is therefore set by what it is: only farmers, fishers and self-employed commission agents get the choice. **A corporation does not get to choose.** There is no cash-basis election for an ordinary operating company. A corporation reports on the accrual basis, and its tax year is its fiscal period, which cannot be longer than 53 weeks (371 days). Bookkeeping software set to a cash view is fine for looking at the bank; it is not the basis your T2 is prepared on. ## Where the confusion usually starts Two things create most of the friction for owner-managed businesses. **Cash-basis reports inside accounting software.** Owners who manage from a cash-basis profit and loss are often surprised when year-end figures differ. Both can be right; they answer different questions. **The GST/HST reporting basis.** GST/HST is generally accrual too: the tax is collectible when you issue the invoice, not when the customer pays. That catches out businesses with slow payers, and it interacts with the [quick method](https://www.everstonecpa.com/blog/gst-hst-quick-method-canada). Not sure how this applies to you? Every corporation is different. Send an enquiry for a straight answer and a fixed quote. [Send an Enquiry →](https://www.everstonecpa.com/book-online) [See fixed fees](https://www.everstonecpa.com/pricing) ## Changing from cash to accrual accounting Farmers, fishers and self-employed commission sales agents can switch methods, and the process depends on direction: - **Accrual to cash:** file your return using the cash method and attach a statement showing the adjustments made to income and expenses as a result of the change. - **Cash to accrual:** submit a written request to the director of the taxpayer’s tax services office *before the due date of the tax return*. Note the asymmetry: moving to cash is done with the return, while moving to accrual needs permission in advance. Missing that deadline means waiting a year. ## Fiscal periods Income is reported annually under either method. Sole proprietorships and most partnerships of individuals use the calendar year unless they elect a different fiscal period on Form T1139. A corporation’s tax year is its fiscal period, and a new corporation chooses its year end; see [choosing a corporate fiscal year end](https://www.everstonecpa.com/blog/corporate-fiscal-year-end-canada-how-to-choose). ## What this means for your bookkeeping If you are incorporated, keep accrual books all year: enter supplier bills on arrival, invoice when work is done, and review receivables and payables monthly. You get figures you can trust and a year end that needs no reconstruction, the same discipline behind clean [advertising and promotion deductions](https://www.everstonecpa.com/blog/advertising-promotion-deductions-canada). Both bases depend on the categories your transactions land in. A [chart of accounts designed around the GIFI codes](https://www.everstonecpa.com/blog/chart-of-accounts-small-business-canada) the T2 uses is what turns a correct accounting basis into a return that is quick to file. ## The bottom line Accrual is the rule; cash is a narrow exception. For a corporation, the work is keeping the books that way. In short, on cash vs accrual accounting Canada keeps a simple rule: accrual for almost everyone, and cash only as a narrow exception. Sources - [Canada Revenue Agency — Accounting for your earnings](https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/business-income-tax-reporting/accounting-your-earnings.html) - [Canada Revenue Agency — Guide T4002](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4002.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please [speak with a CPA](https://www.everstonecpa.com/book-online) before acting on anything here. About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online) Accrual books are easiest to keep when receivables and payables are recorded as they happen, which is how [monthly bookkeeping on the accrual basis](https://www.everstonecpa.com/monthly-bookkeeping-services) runs. ### Keep reading [Bookkeeping mistakes to avoid →](https://www.everstonecpa.com/blog/bookkeeping-mistakes-small-business) [Choosing a fiscal year end →](https://www.everstonecpa.com/blog/corporate-fiscal-year-end-canada-how-to-choose) [Advertising & promotion deductions →](https://www.everstonecpa.com/blog/advertising-promotion-deductions-canada)[Restaurant Tips: Which Ones Go Through Payroll →](https://www.everstonecpa.com/blog/restaurant-tip-reporting-payroll-canada)[Truck driver meal claims: the simplified method, the 80% rate and the logbook →](https://www.everstonecpa.com/blog/trucking-per-diem-meal-claims-canada) FAQ ## Frequently asked questions about cash vs Accrual Accounting in Canada **Can a Canadian corporation use cash-basis accounting for tax?** No. The CRA requires the accrual method for business income; only farmers, fishers and [self-employed](https://www.everstonecpa.com/self-employed-tax-return) commission agents may use the cash method. An ordinary corporation reports on the accrual basis. **What is the difference between cash and accrual accounting?** Under the accrual method, income is reported when earned and expenses when incurred, whenever money moves. Under the cash method, income is reported when received and expenses when paid, except prepaid expenses. **Who is allowed to use the cash method in Canada?** Farmers, fishers and self-employed commission agents may use either the cash or the accrual method, but not a combination of both. **How do I switch from the cash method to the accrual method?** Send a written request to the director of your tax services office before the return is due. To switch from accrual to cash, file on the cash method and attach a statement of the income and expense adjustments. **Why does my accountant’s profit figure differ from my bank balance?** Accrual accounting records revenue when earned and expenses when incurred, not when cash moves. Unpaid invoices count as income and unpaid bills as expenses, so profit and cash rarely match. **How long can a corporation’s fiscal period be?** A corporation’s tax year is its fiscal period, at most 53 weeks (371 days). A new corporation can pick any year end within that, and the choice sets its deadlines. ## Want books kept on the right basis all year? Tell us what software you use and how far back the books go. A CPA replies by email within one business day with a fixed fee, including catch-up from $2,200 a year of records if it is needed. [Get My Fixed Quote](https://www.everstonecpa.com/book-online)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies within one business day. Need more? A 45-minute **Advice Call** is $225 plus GST, credited to your first invoice if you become a client within 60 days. Want us to take it on? [Send an enquiry](https://www.everstonecpa.com/book-online). The gap between the two bases is exactly what [reporting that separates the two](https://www.everstonecpa.com/management-reporting) has to make visible. [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “…We switched to him last year for both our personal and small-business taxes — responsive, knowledgeable and quick.” Heather Powers · Google review **Run your own numbers with the free calculators:** [work out your instalments](https://www.everstonecpa.com/tax-instalment-calculator) · [run the salary-or-dividends numbers](https://www.everstonecpa.com/salary-vs-dividends-calculator) · [when the T2 has to be filed](https://www.everstonecpa.com/t2-deadline-calculator) [← The capital gains reserve: spreading a gain when the money arrives over years](https://www.everstonecpa.com/blog/capital-gains-reserve-canada) [Change in use rules: what happens when a home becomes a rental — or the reverse →](https://www.everstonecpa.com/blog/change-in-use-rules-property-canada) --- Source: https://www.everstonecpa.com/blog/cash-vs-accrual-accounting-canada Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online