Cash vs Accrual Accounting: Which One Should You Use as a Kenyan Business?

When setting up your business finances, one of the first decisions you’ll face is choosing between cash and accrual accounting. Each method affects how you record income and expenses, how you pay taxes, and how you understand your company’s financial health.

So, which is right for your Kenyan business?

What is Cash Accounting?

Cash accounting is simple. You record revenue when you receive it, and expenses when you actually pay them. It works much like managing your personal finances—only accounting for money when it enters or leaves your bank account.

Example: You send an invoice on August 1 but receive payment on August 15. Under cash accounting, you record the income on August 15.

Advantages:

• Easier to maintain
• Gives a clear picture of actual cash flow
• Ideal for small businesses and sole proprietors

Disadvantages:

• Doesn’t show outstanding invoices or bills
• Can make your business appear less profitable during periods of delayed payments

What is Accrual Accounting?

Accrual accounting records revenue and expenses when they are earned or incurred, regardless of when the money is actually received or paid.

Example: You send an invoice on August 1 and expect payment later. Under accrual accounting, you record the income on August 1.

Advantages:

• Provides a more accurate picture of financial performance
• Helps with long-term financial planning
• Required for larger companies and businesses with inventory

Disadvantages:

• More complex to manage
• Doesn’t reflect actual cash on hand, which can be risky for cash flow management

Which Method is Best for Your Business in Kenya?

The right choice depends on your business size, complexity, and goals.

Use cash accounting if:

• You’re a sole proprietor or small service-based business
• You want simplicity and only need to track cash in and out
• Your sales are mostly instant (e.g., retail or mobile money payments)

Use accrual accounting if:

• You invoice clients regularly
• You have employees or inventory
• You’re seeking investors, loans, or grants that require formal financial statements

In Kenya, many startups begin with cash accounting for simplicity. But as the business grows, switching to accrual becomes necessary for better reporting and compliance, especially when applying for funding or dealing with corporate clients.

Final Thoughts

Understanding the difference between cash vs accrual accounting is essential for making the right financial decisions. Each method has benefits and trade-offs, but the key is choosing the one that gives you better control and visibility over your finances.

Need help deciding or making the switch? At Giowide Solutions Limited, we offer expert accounting guidance tailored to your business stage and goals.

Contact us today or explore our Accounting and Bookkeeping Services to learn more.