Most larger businesses must use the non-cash accounting (also known as accruals) method, although smaller businesses can choose this option.

With the non-cash (accruals) method, you record GST on a BAS that covers the period you either:

• receive a payment or issue a tax invoice before receiving payment (for a sale)
• receive an invoice from your supplier before making a payment, or make a payment for a purchase.

In simple terms, accounting on a non-cash basis means you account for GST on the BAS that covers the period in which:

• you have made a sale (even if you are still waiting to receive payment)
• make a purchase (even if you haven’t paid for it yet).

Consider the following example.

Software provider, ‘ABC Security’ provides protective IT software to individuals for $30 a month. ABC Security is registered for GST and accounts for GST using the non-cash accounting (accruals) method. They issue their clients with an invoice for $30 on the first day of each month and clients have 28 days to pay the due amount.

As ABC Security account on an accruals basis, they record the sale including the GST at the time they issue the invoice, not when the payment is made.

They also report the sale on the BAS that covers the period they issue the invoice, regardless of whether payment has been made.

Benefits of non-cash accounting (accruals) method

This method suits businesses that don't get paid straight away as it helps track their true financial position (for example, what is owed to the business and what the business owes others). It’s also helpful when dealing with multiple contracts and large amounts of money.

You can find more information about choosing an accounting method for GST, on the ATO website.