You can use the cash accounting method for GST if your business has an aggregated turnover of less than $10 million. If it’s over $10 million, you must use the non-cash (or accruals) method.

With cash accounting, you record GST on a BAS that covers the period when you actually receive or make a payment for your sales and purchases.

Zayn runs a food catering service and on 10 September he takes an order for $1,100 worth of food (which includes $100 GST). The customer has 30 days to pay for their order. There is no need for Zayn to account for GST at the time of the sale (10 September) as he’s yet to receive any payment.

On 1 October, the customer pays Zayn $1,100 for their order. It is on this date (1 October) that Zayn accounts for the $100 GST, as this is when he actually receives the payment.  

Accounting on a cash basis also means you report your GST on the BAS that covers the period you receive or make payments.

Let’s look again at Zayn’s situation. Assuming that Zayn reports and lodges his BAS quarterly, he will report the GST amount of $100 in the October – December financial quarter as this is when he received payment. This is despite making the sale in the previous (July – September) financial quarter.

Benefits of cash accounting

The key benefit of using the cash accounting method is improved cash flow management. You only need to record and pay GST to the ATO when you actually receive the payment from your customers. Unlike the accruals method, you don’t make GST payments on invoices that have yet to be paid.

Cash accounting is a simple way to account and shows how much money you have on hand. It is also suited to smaller businesses that handle cash transactions.

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