Cash vs. Accrual Accounting: Which Is Right for Your Florida Construction or Contractor Business?

Choosing the proper accounting method is a big decision when starting your Florida construction or contractor business. Your choice will shape how you track income and expenses, interpret your profits, and even file taxes.

In this post, we'll walk through:

• What are cash and accrual accounting are

• The benefits of each method

• When it makes sense to use one over the other

• A simple example comparing both methods in action

By the end, you'll have a clear view of which system will help keep your books - and your business - on solid footing.

What Is Cash Accounting?

Cash accounting is exactly what it sounds like: you record revenue and expenses only when cash changes hands. If a client pays you in February for a job finished in January, you don't record that income until February. If you buy materials but don't pay the supplier until next month, you don't record that cost until then.

Benefits of Cash Accounting

• Easy to track and understand. You only look at your bank and credit-card statements—no need to worry about invoices or unpaid bills.

• Simple setup. Most off-the-shelf bookkeeping software (including QuickBooks) lets you run in cash-basis mode with just a click.

• Immediate cash focus. You get a real-time view of how much money is in the bank, which can help you manage day-to-day operations.

• Cash accounting is often the fastest, most straightforward way to keep the books for a small startup roofing crew or a two-person plumbing outfit just getting off the ground.

What Is Accrual Accounting?

Accrual accounting takes a bit more bookkeeping muscle. You record revenue when it's earned - when you deliver the service or product - regardless of when you get paid. Likewise, you record expenses when they're incurred—when you receive the materials or when the work happens—not necessarily when the cash leaves your bank.

Benefits of Accrual Accounting

• More accurate profitability. You match income and related costs in the same period to see exactly how profitable each job or month was.

• Better financial planning. You can forecast cash inflows and outflows more effectively because you know what you're owed and who you owe.

• May be required for larger firms.

Accrual accounting takes more time—tracking invoices, bills, accounts receivable, and accounts payable adds complexity. Also, it can take a bit to wrap your head around when reviewing your financial statements. But it gives you the complete financial picture you need to scale confidently.

The Matching Principle

The matching principle is at the heart of accrual accounting: you "match" expenses to the revenues they help generate. For example, if you pay a team of electricians in January to wire a new build, but the homeowner doesn't pay your invoice until February, accrual accounting still shows both the labor expense and the revenue in January. That way, you can see exactly how much you earned (and spent) on that job in one place and period.

When to Use Which Method

Just starting? Stick with cash accounting. It's fast, intuitive, and usually accepted by the IRS for small businesses.

Growing toward $1 million in revenue? Consider accrual accounting. As your job sizes and receivable balances grow, accrual gives you a clearer picture of profitability and cash needs.

Established with multiple crews and larger contracts? Accrual likely becomes essential—your clients, your bank, and perhaps even your tax advisor will expect it.

Setting Up Accruals in QuickBooks

QuickBooks Online (QBO) can run on either cash- or accrual-basis. However, a common pitfall is that QBO automatically records revenue when you generate an invoice, not necessarily when the work is done. To make sure you're matching correctly:

• Use Journal Entries or create the invoice in QuickBooks during the appropriate work period - not when cash was collected.

• Use progress invoices if a job spans multiple months.

• Use Journal Entries or enter bills for supplier invoices when they performed the work - even if you didn't pay until later.

• Do you require customer deposits before starting a job? There's a special account your bookkeeper can code these to so the revenue isn't recorded until the work is performed (called "Unearned Revenue").

Here's an example of the difference between cash and accrual books:

Example: Two Plumbing Companies, One Job

Let's compare a cash-basis firm and an accrual-basis firm delivering the same $10,000 plumbing job in January. Both firms pay $4,000 in labor in January and receive a $3,000 supplier invoice in January (but pay it in February). The homeowner pays both firms on February 10.

Plumbing Company A (cash accounting)

January:

Revenue recorded: $0

Labor expense recorded: $4,000

Supplies expense recorded: $0

Net income (loss): –$4,000

Plumbing Company B (accrual accounting)

January:

Revenue recorded: $10,000

Labor expense recorded: $4,000

Supplies expense recorded: $3,000

Net income: $3,000

Cash basis shows a $4,000 loss in January—even though the job was profitable—because the cash from the homeowner hasn't arrived yet and the supplier isn't paid until next month.

Accrual basis shows the actual $3,000 profit in January, since revenue and all direct costs are in the same month.

Come February, the cash-basis firm will record the $10,000 income and $3,000 supplies cost at once, giving a $7,000 profit for February, which muddies the picture of January's performance. On the other hand, the accrual-basis firm will record only the February bank activity that belongs in February—no surprise profits or expenses landing in the wrong month.

Key Takeaways

Cash accounting is simple and great for small, startup trades firms.

Accrual accounting is more complex but offers an accurate picture of job-level and month-to-month profitability.

As you approach $1 million in annual revenue, consider switching to an accrual basis to improve planning, financing, and performance tracking.

QuickBooks Online can handle both—just ensure you give the bookkeeper the data they need to provide you with the insights you need!

Running a profitable trades or construction firm means knowing how much cash you have and how much you've earned. If you're still under $500 K in revenue, sticking with cash accounting is probably fine. But once jobs grow and bills pile up, accrual accounting will help you see your business the way lenders, investors, and savvy owners want—an accurate, month-by-month view of your proper financial health.

Ready to make the switch? At Lucrative Bookkeeping, we help trades and construction firms set up their accounting to get the data they need. Contact us to learn how to transition smoothly to accrual basis (or to get better insights on your cash-basis numbers). Although based in Tampa, we work with construction & contractor firms throughout Florida - Orlando, Jacksonville, Miami, and everywhere. Whether you're a general contractor, own a roofing or plumbing business, or any other trades business, we'd be happy to talk with you to see if we're a good fit!

Don't already have an accountant or tax preparer? Feel free to schedule a call to see if we'd be a good fit for you.