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Accounting methods for business income

The amounts you include as assessable income in any financial year depends on if you account on a cash or accruals basis.

Last updated 18 June 2024

Accounting methods

Don't confuse these 2 accounting methods with the 2 types of GST accounting methods (cash and non-cash).

You need to account for all transactions within a financial year using the same method.

Cash basis

If you account for your assessable income on a cash basis you:

  • include payments you received during the financial year, even if the work was done in a different financial year
  • don't include amounts where the work was done, but you did not receive payment during the financial year.

When you complete your tax return, you may have to reconcile any unpresented cheques to remove them from your income or deductions if you had previously included these amounts.

Accruals basis

If you account for your assessable income on an accruals basis, you include all income earned for work done during the financial year. This is even if you hadn't received payment by the end of the financial year.

Example: cash versus accruals basis

Dimitris manages his own business as a carpenter. He completes a contract in May 2023 worth $7,240 (in the 2022–23 financial year). His client pays the invoice on 10 July 2023 (in the 2023–24 financial year).

If he uses the:

  • cash basis method – he includes the $7,240 (minus any GST) in his assessable income for 2023–24 financial year because he received payment in that financial year
  • accruals basis method – he includes the $7,240 (minus any GST) in his assessable income for the 2022–23 financial year because he did the work in that financial year.
End of example

Declaring income from a farm management deposits account

If you are a primary producer eligible to concessional tax treatment under the farm management deposits (FMD) scheme, it is important you understand how to declare any income from this account.

What happens if I deposit money into an FMD?

If you deposit money into an FMD account you can claim a tax deduction in that financial year (under certain conditions).

What happens if I take money out of an FMD?

When you redraw from your account, we treat the amount as assessable income in that year.

If you redraw an amount within 12 months of depositing it, you generally can't claim a tax deduction. However, if the repayment is due to an exceptional circumstance, such as drought or an applicable natural disaster, it may be deductible.

For more information about income and deductions under the FMD scheme see Farm management deposits scheme.