Accrual Accounting vs Cash Accounting: A ZA Guide
August 19, 2026 · 15 min read · Dylan Klichowicz
You've packed a week's worth of jewellery orders, paid a courier, bought new packaging, and watched money arrive in your bank account. Yet when you try to work out whether your online store made a profit, the answer feels surprisingly unclear. That confusion usually starts with one question: should you record transactions when money moves, or when the sale and expense happen?
That's the difference between cash accounting and accrual accounting. The choice affects how you understand profit, stock, supplier bills, customer payments, and VAT. For a South African maker building an online store, learning the difference early makes growth far less stressful.
Table of Contents
- Why Your Bank Balance Does Not Show Your Real Profit
- How Each Method Records the Same Online Sale
- The R2.5 Million Threshold That Changes Everything
- Sample Journal Entries for a Typical Store Month
- Which Method Fits Your Online Store Right Now
- How to Switch from Cash to Accrual Accounting
- Start Your Store with the Right Financial Foundation
Why Your Bank Balance Does Not Show Your Real Profit
Lerato makes handmade bracelets and sells them through her online store. A customer places an order on the last day of the month, but the payment gateway only pays Lerato a few days later. In the same month, she receives a courier invoice that she'll settle next month and buys beads that will only become part of a sale later.
Her bank balance shows only the money that has arrived and left. It doesn't automatically show the order waiting for payout, the courier amount she owes, or the value of materials still sitting in her workspace. That's why cash in the bank and profit in the books aren't always the same thing.
Cash accounting in everyday language
With cash accounting, you record income when you receive the money and expenses when you pay them. If a customer orders today but the payment reaches your bank account later, you record the income when the funds arrive.
The method feels natural because it follows your bank statement. You can look at the records and see what cash has moved. For a very small store with straightforward sales, no customer credit, and limited stock complexity, that simplicity can be useful.
It also has a limitation. An unpaid supplier invoice doesn't appear as an expense yet, even though your store has already received the service or goods. The books can therefore make one month look unusually profitable and another month look unusually poor, because payments landed at different times.
Accrual accounting in everyday language
With accrual accounting, you record income when you've earned it and expenses when you've incurred them, even if payment happens later. South African tax guidance describes the distinction in those terms, with cash records following the movement of money and accrual records following when income is earned and expenses are incurred (South African accounting concepts and principles).
For an online shop, that usually gives you a clearer view of which sales belong to a month and which costs helped generate them. You'll track amounts customers still owe, bills you still need to pay, stock, and other timing differences.
Practical rule: Your bank balance answers, “How much cash do I have?” Your profit report answers, “What did the store earn and use during this period?”
Cash flow still matters under accrual accounting. A store can show a profit while waiting for payouts or customer settlements, so keep a separate cash-flow habit. A practical guide to managing that day-to-day movement is Shopstar's cash-flow management advice.
For a broader explanation of the same accounting choice in another small-business setting, you can also read this guide to accrual accounting for Australian businesses. The local rules differ, but the basic timing idea is similar.
How Each Method Records the Same Online Sale
Take one simple order. A customer buys a handmade candle for R350, pays by card, and the payment gateway pays the store three days later. The product ships on the order date, while the gateway payout arrives afterwards.
Under cash accounting, the sale waits until the payout reaches the business bank account. Under accrual accounting, the store records the sale when it has earned the income, which in this example is when the order is fulfilled or shipped. The later bank payout clears the amount owed by the payment gateway, rather than creating a brand-new sale.
Cash vs Accrual for a R350 Candle Sale
| Transaction Event | Cash Accounting | Accrual Accounting |
|---|---|---|
| Customer places and receives the candle order | No sale is recorded until cash arrives | Sale is recorded when the store has earned it through fulfilment |
| Payment gateway payout arrives three days later | Record the R350 sale | Record the cash receipt against the amount due from the gateway |
| Packaging used for the order | Record the expense when the packaging is paid for | Record or allocate the expense when it relates to the sale, depending on the bookkeeping system |
| Courier charge | Record when the courier bill is paid | Record when the courier service has been received and the amount is owed |
| Platform or gateway fee | Record when the fee is paid or deducted | Record the fee when it is incurred, with the payout reconciled to the net amount received |
The total sales value is still R350. The difference is which day or accounting period shows the sale.
A gateway payout can also confuse new sellers because the bank may receive less than R350 after fees. Under accrual accounting, the books can show the full sale, the fee as an expense, and the net payout as the cash movement. Under cash accounting, the records may follow the net amount when it lands, which makes fee reconciliation especially important.
That distinction becomes more useful as your store sells stock, offers payment terms, receives courier invoices later, or pays for packaging in advance. The more timing gaps your business has, the less your bank statement tells you about the work done during a particular month.
The R2.5 Million Threshold That Changes Everything
South African sellers need to watch turnover, which means the value of sales before deducting expenses. Sole proprietors and partnerships with turnover below R2.5 million may use cash-basis accounting, while businesses above that threshold are required to use accrual accounting, according to South African small-business guidance (cash versus accrual accounting in South Africa).
This isn't a target you should only check after crossing it. A growing online store should monitor turnover throughout the year, because reaching the threshold can mean moving from simpler cash records to a system that tracks stock, receivables, and payables properly.
Why the threshold matters for an online store
A jewellery brand may begin with direct payments, small stock purchases, and no customer credit. Cash accounting can be manageable in that early stage. As orders grow, the store may hold more beads, finished products, packaging, and consignment stock, while suppliers and couriers may allow payment after delivery.
Accrual accounting captures those obligations and resources more completely. It can show that a store has earned sales that haven't settled yet and has incurred delivery costs that haven't been paid.
The threshold is about accounting method eligibility, but VAT follows its own timing rules. SARS generally applies VAT on an invoice basis by default. A cash basis option is available only to smaller qualifying businesses with taxable supplies not exceeding R2.5 million, subject to the relevant requirements (SARS tax guide for small businesses).
VAT warning: Your bookkeeping method doesn't automatically decide when VAT is due.
Under the invoice basis, an online store may need to account for VAT before the customer's money has reached the bank. That can happen with delayed settlements, payment gateways, or customer arrangements where payment follows the invoice. New sellers often spend the cash they receive and only later realise that part of it was needed for VAT.
Shopstar's South African VAT threshold guide provides useful local context, but you should confirm your position with a registered tax practitioner or SARS before changing your VAT treatment.
Sample Journal Entries for a Typical Store Month
A journal entry is the bookkeeping record for a transaction. You don't need to fear the term. It records what came in, what went out, what the store earned, and what the store still owes.
Consider a small online shop with three customer sales, a payment for packaging materials, and a courier invoice received during the month but payable later. The amounts below are deliberately qualitative, because the important lesson is the timing rather than a made-up rand total.
Cash accounting entries
Cash accounting records completed money movements:
- Customer payments received: Record the three sales when the payment funds reach the store's account.
- Packaging payment made: Record the packaging expense when the supplier is paid.
- Courier invoice received but unpaid: Make no cash expense entry yet, because money hasn't left the account.
- Courier invoice paid later: Record the courier expense when payment is made.
This approach keeps the records simple, but the month's profit can look higher because the unpaid courier cost is missing from that month.
Accrual accounting entries
Accrual accounting records the business activity as it occurs:
- Sales earned: Record each sale when the store has fulfilled the customer order. If the payment gateway hasn't paid out, record an amount due from the gateway.
- Packaging purchased: Record the packaging as stock or an expense according to how the store uses and tracks it.
- Courier service received: Record the courier cost when the delivery service has been provided, even though the invoice remains unpaid.
- Later settlement: Reduce the amount owed to the courier when the store pays the invoice.
The unpaid courier invoice matters because it belongs to the cost of fulfilling those orders. Accrual accounting places it in the period where the delivery happened, giving the owner a more useful view of the month's margin.
A journal entry isn't extra paperwork for its own sake. It is how you stop an unpaid bill or delayed payout from hiding the truth about a sale.
Beginners often learn journal entries through debit and credit labels. Those labels are useful, but the business logic comes first: identify what the store received, what it owes, and when the activity happened. A separate guide to steps to record business loan transactions can help if your store later adds borrowing to its books.
Inventory needs its own care. Materials and finished products should not be treated casually, especially when damaged, outdated, or difficult to sell. Shopstar's net realisable value guide explains a related stock-measurement concept in plain language.
Which Method Fits Your Online Store Right Now
There isn't one perfect method for every South African online seller. The right choice depends on how your store operates today and what you're preparing to do next.
Use these questions as a practical check:
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Do you hold stock? If you buy beads, fabric, candles, clothing, skincare products, or finished jewellery and keep them before sale, accrual accounting usually gives you a clearer picture of stock and product costs.
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Do you offer or use credit terms? If a customer pays later, or a supplier sends an invoice that you settle later, accrual accounting records the amount owed instead of waiting for the bank movement.
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Is your turnover above R2.5 million? Sole proprietors and partnerships below that turnover may use cash basis accounting, while businesses above it are required to use accrual accounting under the South African guidance cited earlier.
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Are you preparing for financing? A lender or investor may want to understand more than your current bank balance. Accrual records show receivables, payables, stock, and obligations that affect the store's underlying position.
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Is simplicity your main priority? If you're starting small, sell directly, have straightforward transactions, and don't carry complicated stock or credit arrangements, cash accounting may be a practical starting point.
Two common misunderstandings
Cash accounting isn't the same as cash-flow management. Cash accounting records transactions when money moves, but you still need to plan upcoming supplier payments, tax obligations, refunds, and gateway settlements.
Accrual accounting isn't only for large companies. A small maker can use it when delayed payments, stock, or supplier credit make cash records misleading. The method may require more disciplined bookkeeping, but the information can help you price products and plan purchases.
A sensible approach is to begin with the method you're allowed to use, then plan ahead rather than wait for a crisis. If you're approaching the threshold, carrying more stock, or considering finance, speak to a bookkeeper before the change becomes urgent.
How to Switch from Cash to Accrual Accounting
Switching methods isn't just a setting you change in an app. You need a clean starting point so that old sales, unpaid bills, stock, and prepayments aren't counted twice or left out.
Start with a complete review
Bring together your cash records, bank statements, sales reports, supplier invoices, gateway statements, refund records, and inventory list. Reconcile the records first, which means checking that the bookkeeping entries agree with the actual bank and store activity.
Then identify:
- Receivables: Sales or amounts earned that customers or payment providers still owe.
- Payables: Supplier, courier, advertising, or service invoices the store still needs to pay.
- Inventory: Materials and finished goods still held for sale.
- Prepayments: Amounts already paid for services or supplies that belong to a later period.
- Tax records: VAT and other tax information that must agree with the applicable SARS treatment.
Build the opening accrual picture
Your accountant or bookkeeper can prepare opening balances for the items cash accounting may not have tracked. This opening position becomes the base for recording transactions under accrual accounting.
The adjustment should show what the business owns, what it owes, and which income or expenses belong to the relevant period. Inventory deserves particular attention because a mistake can distort both the value of stock and the cost of goods sold.
Align VAT and records
SARS generally uses the invoice basis for VAT, while the payments basis is limited to qualifying vendors. Your bookkeeping records and VAT returns must therefore agree with the basis that applies to your business. Don't assume that moving to accrual accounting automatically solves VAT timing, or that cash accounting means VAT can always wait until customer cash arrives.
Choose an effective date with professional advice, preferably at a clean reporting point. Tell the person handling your tax filings, update the accounting software, and keep a written record of the method change and opening adjustments.
Get help before the switch if: your store has significant stock, unpaid invoices, customer deposits, refunds, prepayments, or VAT timing differences.
A bookkeeper can also test the first reporting period under the new method. That review can catch duplicate sales, missing courier bills, incorrect gateway fees, and stock values that don't agree with the physical goods on hand.
Start Your Store with the Right Financial Foundation
Most South African makers can begin with a simple bookkeeping method while their store is small and transactions are easy to follow. The important part is to watch turnover, stock, supplier terms, delayed payouts, and VAT treatment so you can prepare before cash records stop giving you a reliable view.
Your ecommerce platform should make that bookkeeping easier. Look for clear order records, inventory tracking, payment reports, refunds, and fee information that you can reconcile with your bank and accounting system. Shopstar is a South African ecommerce platform with local payments, shipping, orders, inventory, analytics, and monthly VAT tax invoices for fees already deducted, along with fee reports that can support bookkeeping.
Start by deciding which method fits your current store, then create a monthly routine for reconciling sales, payouts, fees, stock, supplier bills, and VAT. That small habit will give you a much stronger foundation when your jewellery brand, candle shop, or handmade clothing business begins to grow.
Set up your products, local payment options, shipping, inventory, and sales records in one place with Shopstar. Start your store with a clear bookkeeping routine from the first order, and use the platform's reports and invoices to make cash or accrual accounting easier to manage.
