Accrual vs Cash Bookkeeping: Why Your Accounts Can Show a Profit You Haven't Received

By Di Ma, Project Manager 27 OCT 2026 · 4 MIN READ

It is one of the most common questions a bookkeeper hears: "The accounts say we made HK$69,000 last month — so where is it?" Usually nothing is wrong. The accounts and the bank balance are answering two different questions: what the company earned and spent in the month, and what money actually moved. Those are the accrual basis and the cash basis.

Two ways to count the same month

Cash basis: income when the money arrives, expenses when the money leaves. Simple, and it matches the bank statement.
Accrual basis: income when it is earned, expenses when they are incurred — whenever the cash moves. It matches what the business actually did in the period.

A worked example

December, the same three events counted two ways
Event	Cash basis (December)	Accrual basis (December)
Invoice of HK$100,000 sent 15 Dec, paid 20 Jan	—nothing received yet	+HK$100,000earned in December; owed to you
December rent of HK$30,000, paid 2 Jan	—not paid yet	−HK$30,000December's cost, accrued
A year's insurance, HK$12,000, paid 1 Dec	−HK$12,000all of it	−HK$1,000one month; HK$11,000 prepaid
December result	Loss of HK$12,000	Profit of HK$69,000

Same company, same month, same three events — and a HK$81,000 difference between the two answers. Neither is wrong; they measure different things. The accrual figure tells you December was a good month. The cash figure tells you the bank balance fell by HK$12,000 in December.

The words that explain the gap

Receivables — income earned but not yet received: the HK$100,000 invoice.
Payables — supplier bills received but not yet paid.
Accruals — costs of the period with no bill or payment yet: December's rent, paid in January.
Prepayments — paid in advance for a later period: eleven months of the insurance.
Deferred revenue — the reverse: a customer pays you in advance, and you earn it month by month as you deliver.

Put together, they are the bridge between profit and cash. Profit, plus the change in what you are owed and what you owe, plus the timing items, gets you to the change in the bank balance.

Which one does a Hong Kong company use?

For its statutory accounts, the accrual basis. Hong Kong's financial reporting standards, like IFRS, require financial statements — apart from the cash flow statement — to be prepared on the accrual basis, and those are the accounts your auditor audits and your profits tax return is built from. (See audit-ready books and profits tax rates.)

Day to day, many small companies think in cash — and books kept on a cash basis can be turned into accrual accounts at the year end with adjustments. But that is exactly the work that makes year ends slow: reconstructing who owed what on the last day of the year, months later. Books kept on the accrual basis all year arrive at the year end already right.

The mistake that counts income twice

The classic accrual error: the invoice is recorded as income when it is sent, and then the customer's payment is also recorded as income when it arrives. Revenue is doubled. The fix is simple — the payment does not create income, it clears the receivable the invoice created — but it only works if each payment is matched to its invoice.

A quick test: your receivables on the balance sheet should equal the list of invoices your customers have not yet paid. If they don't, something has been counted twice — or not at all.

Why you want both views

Profit (accrual) tells you whether the business is working: prices, margins, costs.
Cash tells you whether you can pay the bills next month — see the 13-week cash flow forecast.

A company can be profitable and run out of cash (customers paying late), or show a loss in a month with plenty in the bank (a big prepayment). A good monthly management pack puts both in front of you.

How Certanta handles it

Accrual books all year, ready for the audit — not rebuilt at the year end.
Invoices booked when they are issued; when the customer pays, the payment is matched to the invoice and clears the receivable — never counted as income twice.
Supplier bills tracked as payables until they are paid, and aged so you can see what is due.
Timing items handled: prepayments spread over the months they cover, deferred revenue released as it is earned, depreciation on fixed assets.
Both views in your portal: profit in the income statement and management pack, cash in the bank balances and the 13-week forecast.

The income statement summary and balance sheet from a Certanta management pack for the fictional demo company Harbourfront Trading Ltd: August 2026 profit of HKD 58,035, and a balance sheet at 31 August 2026 showing trade receivables, prepayments and deposits, accrued charges and trade payables alongside the bank balances. — Accrual accounts in the demo company's management pack: the profit for the month, and on the balance sheet the receivables, prepayments, accrued charges and payables that explain why it differs from the bank balance.

Accrual books come with every plan — see pricing.

Frequently asked questions

What is the difference between accrual and cash accounting?

Cash accounting records income when money is received and expenses when money is paid. Accrual accounting records income when it is earned and expenses when they are incurred, regardless of when the cash moves.

Why does my profit not match my bank balance?

Because profit is measured on the accrual basis and the bank balance is cash. Invoices not yet paid, bills not yet paid, costs incurred but not billed, and amounts paid in advance all create differences between the two.

Do Hong Kong companies have to use accrual accounting?

For their statutory financial statements, yes: Hong Kong's financial reporting standards, like IFRS, require financial statements other than the cash flow statement to be prepared on the accrual basis. Those are the accounts that are audited and used for the profits tax return.

What is an accrual?

A cost that belongs to the period but has not yet been billed or paid — for example, a month's rent paid at the start of the following month. It is recorded as an expense in the period it relates to, with a matching liability.

What is a prepayment?

An amount paid in advance for a later period, such as a year's insurance paid upfront. Only the part that relates to the current period is an expense; the rest is carried as a prepayment and released month by month.

How do I avoid counting income twice?

Record income once, when the invoice is issued, and treat the customer's payment as clearing the receivable — not as new income. Matching each payment to its invoice makes this automatic.

Profit and cash, side by side

Certanta keeps your books on the accrual basis your accounts need, and shows the cash view next to it — in your monthly management pack and 13-week forecast.

Open the demo See pricing

This article is general information about bookkeeping and financial reporting, not accounting or tax advice for your company.