Choosing between cash and accrual accounting is an important decision for your company, and every business’s situation is different. This article is here to help you understand how each method works inside Property Matrix. For specific tax or compliance requirements, please consult with a qualified accountant or tax advisor.

Accrual and cash accounting are two different methods of recognizing income and expenses in your books. Cash accounting records transactions only when money actually moves (when cash is received or paid out). Accrual accounting records income when it is earned (e.g. when an invoice is issued) and expenses when they are incurred (e.g. when a bill is received), even if the payment happens later. This means accrual accounting uses accounts like Accounts Receivable and Accounts Payable to track money owed, whereas cash accounting does not record a transaction on the books until the cash changes hands.

Generally, larger companies and GAAP (Generally Accepted Accounting Principles) require accrual basis, while smaller private businesses may choose cash basis for simplicity. Cash basis can make taxes simpler and let you time income/expenses for tax planning, but it may not show the full financial picture since revenues and expenses can “jump” in the period when payments occur. Accrual gives a more consistent view of financial performance by matching income and expenses to the period they relate to.

Which method to use depends on your business’s needs - if you need GAAP-compliant financials or have investors, accrual is likely required, whereas if you are a small operation focused on cash flow or taxes, cash might be acceptable. Always check with your accountant or tax advisor about requirements for your specific company (for instance, certain companies above a revenue threshold or with inventory may be required to use accrual accounting).

Once you select an accounting method for your Property Matrix account during the setup phase, it applies to all your books and cannot be changed after any transactions have been created, so choose carefully.

Below, we explain how each accounting method impacts the way transactions are recorded in Property Matrix.

Property Matrix supports both cash and accrual accounting, and the choice affects when transactions hit your books. Regardless of accounting method, the operational steps in the software (creating invoices, entering bills, receiving payments, etc.) are the same - the difference is in the accounting behind the scenes for which accounts are affected and when.

Example: Suppose you charge a tenant $1,000 in rent on January 1, due January 5. Under cash basis, January 1 has no income recorded for that invoice (it’s just a reminder that the tenant owes $1,000). When the tenant pays on January 5, your books will show $1,000 of rental income in January (when the cash came in) and an increase in cash. Under accrual basis, on January 1 your books immediately record $1,000 of income and $1,000 in Accounts Receivable for what the tenant owes you. On January 5, when payment arrives, cash goes up and Accounts Receivable goes down by $1,000, showing the tenant’s debt was paid. The total income for January would still be $1,000 under accrual, but importantly if the tenant didn’t pay until February, accrual would still count the $1,000 as January income (with an AR showing on the balance sheet), whereas cash basis would not count any income in January, and instead show the $1,000 income in February when the cash is received.

These follow the exact same principles as tenant invoices and invoice payments, except expenses are recorded instead of income and cash is outgoing instead of incoming. Bills in accrual accounting will debit the expense account and credit Accounts Payable, while in cash accounting they will have no accounting impact. When a bill payment is recorded, a bank account is always credited. Accounts Payable is debited in accrual accounting, and the expense account is debited in cash accounting.

These also follow the same principles as tenant invoices and payments, except they represent fees charged between the property management company and the owner’s company so they appear on both company's books. In accrual accounting, the owner’s company records an expense and Accounts Payable, while the management company records revenue and Accounts Receivable. In cash accounting, there is no accounting impact until payment occurs. When the payment is recorded, the owner’s bank account is always credited and the management company’s bank account is always debited, clearing the payable/receivable in accrual accounting or posting the expense/revenue in cash accounting.

Credit notes reduce what is owed, similar to the opposite of an invoice or bill. They can be applied to both invoices and bills. In accrual accounting they immediately adjust revenue or expense and the related receivable/payable, while in cash accounting they have no effect until applied or refunded. Refunds return money that received earlier: in accrual they usually just clear an existing credit or liability, while in cash they reverse previously recognized income or expense at the time the cash goes out for the refund.

When a tenant moves out or you need to apply a part of their security deposit to charges (for damages, unpaid rent, etc.), you use a Security Deposit Application transaction. Security deposits are recorded with Invoice Payments for security deposit invoices, and Security Deposit Applications are created when those funds are used. Security Deposit Applications will always debit the security deposit account selected, and credit the Prepayments liability account in accrual accounting and credit the Prepaid Income account in cash accounting. When applied to an invoice, accrual accounting reduces the Prepayments liability and clears Accounts Receivable, while cash accounting reclassifies the Prepaid Income to the income account for the applied invoice.

Owner Contributions and Owner Draws represent money flowing between the property owner(s) and the company. An owner contribution is when an owner puts money into the business (increasing equity), and an owner draw is when the owner takes money out of the business (owner distributions). These are equity transactions and are not income or expense, so they are treated the same way in both cash and accrual accounting and are recorded immediately when they take place.

Finally, there are some transaction types in Property Matrix that are more like standalone financial events, not part of the charge/payment or receivable/payable cycle. These include things like bank transfers, deposits, manual journal entries, reconciliations, and closing entries. These transactions are handled the same way under both cash and accrual methods because they involve actual movement or adjustment of funds at the time of the transaction.

In summary, the primary differences between cash and accrual accounting in Property Matrix come down to when income and expenses are recognized. If you use cash accounting, transactions like invoices and bills are essentially placeholders until actual payment occurs; the system will not post to income or expense accounts for those until the cash event. If you use accrual accounting, those transactions post to your ledgers immediately, reflecting earnings and obligations when they arise, with corresponding receivables or payables on the balance sheet.

We hope this overview gives you a clear understanding of how cash vs. accrual accounting is handled in Property Matrix.

Note: This article is provided for informational purposes only and is intended to explain how cash and accrual accounting are handled in Property Matrix. It should not be considered financial or tax advice. Requirements may vary depending on your company’s situation, so please consult with a qualified accountant or tax advisor before deciding which method to use.