Cash vs accrual accounting for freelancers

By SoloWOS teamPublished October 19, 2026

IN SHORT

Under cash accounting, you record income when a client pays you and expenses when you pay them. Under accrual accounting, you record income when you earn it (usually when you invoice) and expenses when you're billed. Most freelancers use the cash method: it's simpler, it matches the bank, and unpaid invoices aren't taxed until the money arrives.

Prices and limits as of October 26, 2026.

Key takeaways

The cash method follows money in and out; the accrual method follows invoices and bills.
With the cash method, an invoice sent in December and paid in January is next year's income.
Constructive receipt: a check you receive in December counts in December, even if you deposit it in January.
On the cash method you can't deduct an unpaid invoice as a bad debt, because it was never income.
You choose a method on your first Schedule C; changing later generally needs IRS consent on Form 3115.

Your accounting method decides which year a dollar belongs to. For most freelancers the answer is the cash method, and it's what SoloWOS reports use. Here's one month shown both ways so the difference is concrete. More on records and taxes in our taxes and expenses hub.

The two methods side by side

Cash vs accrual method for a freelancer (IRS Publication 538)
	Cash method	Accrual method
Income counts when	You receive payment, or it's made available to you	You've earned it and the amount is fixed, usually when you invoice
Expenses count when	You pay them	You owe them and the service or goods were provided
Unpaid invoices	Not income	Income now; a bad debt deduction later if never paid
Matches your bank balance	Yes	No
Bookkeeping effort	Low	Higher: track receivables and payables
Who uses it	Most freelancers and sole proprietors	Businesses with inventory above the small business exceptions, or by choice

Worked example: one December, two methods

WORKED EXAMPLE

Example: a freelance developer's December 2026

Invoices sent in December: A $3,000 (paid December 20), B $2,500 (paid January 12), C $1,500 (paid January 30). A November invoice D for $2,000 was paid December 5. Expenses: design software $120, paid December 3. A subcontractor billed $800 on December 28; paid January 10. Cash method, December: income $3,000 (A) + $2,000 (D) = $5,000. Expenses $120. Profit $4,880. Accrual method, December: income $3,000 + $2,500 + $1,500 = $7,000 (D was November's). Expenses $120 + $800 = $920. Profit $6,080. For 2026 taxes on the cash method, invoices B and C ($4,000) and the $800 subcontractor bill belong to 2027. On the accrual method they're all 2026.

Over several years both methods add up to the same income. What changes is timing: the cash method moves income from invoices still unpaid at year end into the next year, which helps when clients pay slowly.

Cash method rules that catch people

Constructive receipt: income counts when it's credited to you or made available without restriction. A check that arrives December 31 is December income even if you deposit it in January, and you can't hold checks to push income into next year.
Prepaid expenses: paying a year of software in advance is generally deductible in the year you pay only if the benefit doesn't last beyond 12 months after it starts or past the end of the next tax year (the 12-month rule in Publication 538).
Bad debts: an invoice a client never pays isn't deductible on the cash method, because you never counted it as income. You simply never report it.
Card payments: count them when they're paid, which for most freelancers is the payment date the processor records.

Which method should you use?

Choosing an accounting method as a freelancer
Your situation	Usual choice
Sole proprietor selling services, no inventory	Cash
Clients often pay 30 to 90 days after the invoice	Cash (income follows the money)
You want monthly reports that match your bank	Cash
You sell physical products and keep inventory	Ask an accountant; the small business exceptions often still allow cash
You want books that show work earned but not yet paid, for a lender or a buyer	Accrual for management reports, cash for taxes (keep the tax method consistent)

The IRS also allows a combination (hybrid) method as long as it clearly reflects income and you use it every year, but for a solo service business it adds work without much benefit. If you want to see what clients owe you without leaving the cash method, keep a simple list of unpaid invoices with the amount, the date sent and the due date, and review it on the first of each month. That list, not your tax method, is what tells you when to send a reminder or pause new work for a slow payer.

You pick the method when you file your first Schedule C, simply by reporting that way. Switching later is a change in accounting method that generally needs the IRS's consent through Form 3115. A list of unpaid invoices gives you the useful part of accrual reporting without changing your tax method.

Doing this in SoloWOS

SoloWOS reports work on the cash method. In Expenses > Reports, an invoice counts as income in the month it was paid: the moment of the card payment, or the date you choose when you mark it paid by hand. Expenses count on the date you give them, so enter the day you paid. Invoices you've sent but haven't been paid for stay in Invoicing as open or overdue and don't touch the profit figure. You can log business expenses with receipts and turn the monthly numbers into a profit and loss statement, which is cash basis by default.

This is general information based on IRS Publication 538, not tax or accounting advice. If you carry inventory, have partners or plan to change methods, ask a tax professional before you file.

Questions

Do most freelancers use cash or accrual accounting?

Cash. Most sole proprietors selling services use the cash method because it's simpler, matches their bank, and doesn't tax invoices clients haven't paid yet. The accrual method is mainly for businesses with inventory or owners who want reports based on invoices.

If a client pays my December invoice in January, which year is it?

On the cash method, the year you receive the money: January, so next tax year. On the accrual method, it's income in December, the year you earned and invoiced it. A check that reached you in December counts in December either way.

Can I switch from accrual to cash?

Generally only with IRS consent, by filing Form 3115 for a change in accounting method. Some changes qualify for automatic consent. Talk to a tax professional before switching, since income can end up counted twice or not at all in the switch year.

Can I write off an invoice a client never paid?

Not on the cash method. Because you never reported the unpaid amount as income, there's nothing to deduct. On the accrual method, you included it in income when you invoiced, so you can generally deduct it as a bad debt once it's worthless.

Sources

Facts checked against these sources on October 18, 2026. Rules and amounts change, so confirm them at the source before you file or sign.

Last reviewed: October 18, 2026

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