Accounting Basis — Accrual vs Cash

Q: Where do I see which basis an entity uses?

On the entity record — Accounting Basis appears in the highlights bar across the top, alongside the currency and fiscal year start. Open any entity from the Entities tab and it's one of the first things you see.

Revenue recognition 6 min read Updated July 2026

Every entity has one setting called Accounting Basis, and it answers a surprisingly deep question: when does a sale count as income? The moment you send the invoice, or the moment the customer actually pays? Your answer — Accrual or Cash — changes which month your profit shows up in, so it's worth understanding before you pick. This article explains both in plain terms, shows the exact entries REDA makes for each, and helps you choose.

Getting there. Open the App Launcher (the grid icon at the top-left of any page) → REDA Financials Admin → the Entities tab, then open the company and set Accounting Basis on the entity record.
Access you'll need. Setting an entity's accounting basis requires the Accounting Admin v2 or Accounting Controller v2 permission set. The Accounts Payable v2, Accounts Receivable v2, and Read Only v2 sets can view it but not change it.

First, what does "recognising revenue" mean?

To recognise revenue is simply to count it as income in your profit & loss — to say "this sale is now part of this month's earnings." The interesting bit is timing, because selling and getting paid often happen in different months. Imagine you invoice a customer £1,200 in January and they pay in March. Which month earned that £1,200?

Accrual basis says January — you earned it when you did the work and invoiced. (The payment in March is just settling a debt.)
Cash basis says March — you earned it when the money actually arrived.

Why anyone cares. Most established businesses and all accrual-reporting standards (IFRS, US GAAP) require accrual, because it matches income to the period the work was done — a truer picture of performance. Cash basis is simpler and is permitted for some small businesses or specific tax regimes, where income is only taxed once received.

One scope note. Accounting Basis affects the sales / revenue side — how and when income is recognised. Purchases and other postings aren't changed by this setting.

Accrual — recognise at invoice

The default for most companies. Revenue is booked the day you raise the invoice; the later payment simply clears the debt.

When	Account	Debit	Credit
Invoice raised (January)	Accounts Receivable	1,200
Invoice raised (January)	Revenue		1,200
Payment received (March)	Bank	1,200
Payment received (March)	Accounts Receivable		1,200

Revenue hits the January profit & loss. By March there's nothing left to recognise — the cash just turns a receivable into money in the bank.

Cash — recognise at payment

Used where income should only count when cash arrives. The invoice still creates a receivable, but the revenue is parked in a Deferred Revenue account (a liability — "income we've billed but not yet earned for accounting purposes") until the payment is received and applied. Only then is it released to the profit & loss.

When	Account	Debit	Credit
Invoice raised (January)	Accounts Receivable	1,200
Invoice raised (January)	Deferred Revenue		1,200
Payment received & applied (March)	Bank	1,200
	Accounts Receivable		1,200
	Deferred Revenue	1,200
	Revenue		1,200

Notice the revenue only reaches the profit & loss in March, when the cash is applied — the defining behaviour of cash-basis accounting.

Cash basis needs a Deferred Revenue account. REDA won't let you save a Cash-basis entity without a Default Deferred Revenue Account — there'd be nowhere to park the income between invoice and payment.

Side by side

	Accrual	Cash
Revenue counts when…	you invoice	you're paid
Extra account needed	none	Deferred Revenue
Picture of performance	truer (matches work to period)	simpler (follows the cash)
Typical users	most companies; IFRS / US GAAP reporting	some small businesses; certain tax regimes

Choosing — and why it locks

If you're unsure, choose Accrual — it's what most businesses need and what statutory accounts usually require. Choose Cash only if you know your reporting or tax rules call for it.

Decide before you post — it locks afterwards. Once an entity has recorded transactions, REDA prevents switching basis. Why? Because flipping mid-year would recognise some months' revenue at invoice and others at payment, making periods impossible to compare. Like the entity's currency, it's a setting that can't change once the books are live.

In our example group, Meridian Properties US LLC runs on Accrual — a rent invoice raised on 1 June counts as June income even if the tenant pays in July. That's the pattern you'll see in the worked examples across the Accounts Receivable guides.

The rules that keep the basis honest

What you tried	Message you’ll see	What to do
Saving a Cash-basis entity without a Deferred Revenue account	“Cash basis entities require a Default Deferred Revenue Account. Configure it in the Default GL Accounts section before saving.”	Pick (or create) a liability account for deferred revenue and set it in the entity’s Default GL Accounts — see Entity Default GL Accounts.
Changing the basis on an entity that has posted transactions	“Accounting Basis cannot be changed because this entity has posted accounting transactions. Changing the basis after posting would create inconsistent financial statements.”	Leave the basis as it is. If the company genuinely must move to a different basis, set up a fresh entity with the correct one and bring balances across.

Common mistakes to avoid

Mistake	Why it hurts	Do this instead
Picking Cash “because we’re small” without checking your rules	Many jurisdictions and any IFRS / US GAAP reporting require accrual — you may have to rebuild the entity later.	Confirm with your accountant which basis your statutory and tax reporting require before the first posting.
Mapping Deferred Revenue to an income account	Unrecognised income would sit in the profit & loss instead of the balance sheet, defeating the whole point of cash basis.	Point the Default Deferred Revenue Account at a liability account.
Comparing P&Ls of a Cash entity and an Accrual entity line by line	The same month’s trading shows different revenue purely because of timing — the comparison misleads.	Compare like with like, or look at both over a long enough span that timing differences wash out.

Where to go next

Fiscal Year Start Month — the other calendar setting on the entity.
Entity Fields Reference — where this field lives among the rest.
Creating an Entity — set the basis when you build a company.
How Posting Works — how the basis shapes ledger entries.

Frequently asked questions

No. Customers see the same invoice either way. The difference is purely internal — which month your books count the income.

Yes. Accounting Basis is per entity, so a small subsidiary could be Cash while the main trading company is Accrual — each follows its own rules.

It's a liability account holding income you've invoiced but not yet recognised. On a cash-basis entity it's where revenue waits between the invoice and the payment. Once you're paid, it moves to Revenue.

Because the setting locks after posting, you can't simply switch it. The clean path is to retire the entity and set up a fresh one with the correct basis (bringing balances across). This is exactly why it's worth deciding up front.

On the entity record — Accounting Basis appears in the highlights bar across the top, alongside the currency and fiscal year start. Open any entity from the Entities tab and it's one of the first things you see.

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