What is “cash basis” accounting?
Cash basis accounting recognises revenue when cash is received and expenses when cash is paid: regardless of when the underlying economic activity occurred. It is simpler than accrual basis accounting but unsuitable for businesses with credit sales, prepayments, deferred revenue, or significant working capital, which is most companies beyond personal-services scale.
Cash basis vs. accrual basis
- Cash basis: simple, mirrors bank balance. Good for very small service businesses.
- Accrual basis: matches revenue with effort to produce it. Required by IFRS, GAAP, TFRS for most businesses.
- The gap: a company that bills annually upfront looks wildly profitable on cash basis at signing and unprofitable on renewal-light months: accrual smooths this to economic reality.
Where cash basis is acceptable
- Solo consulting practices.
- Very small personal service businesses with no inventory and minimal AR/AP.
- Certain tax-reporting contexts where cash-basis is permitted up to revenue thresholds.
Where cash basis is dangerous
- SaaS: recurring revenue model breaks under cash basis.
- Manufacturing: inventory and supplier credit make cash-basis distortive.
- Companies with VC investors: accrual is expected.
- Multi-year contracts: cash basis hides true economics.
Cash basis in Türkiye
Merchants keeping books on the balance-sheet basis (Tax Procedure Law, VUK Art. 177) record revenue and expenses on an accrual basis, as required by the periodicity concept in the General Communiqué on the Accounting System Application. Self-employed professionals (lawyers, doctors, engineers) are taxed on a cash (collection) basis under Income Tax Law Art. 67. The Turkish SME financial reporting standard (KÜMİ FRS) also requires accrual accounting; only very small businesses taxed under the simplified method operate on something close to a cash basis.
Do: migrate to accrual basis as soon as multi-period contracts, AR, AP or deferred revenue exist meaningfully.
Don’t: manage to cash-basis metrics in an accrual business: timing differences will be misinterpreted as economic shifts.
Sources. Tax Procedure Law No. 213. Statute links open the official consolidated Turkish texts on mevzuat.gov.tr.