Guide · Any country · Accounting method

Cash vs accrual accounting for freelancers: when does an invoice count as income? (US, UK, Canada)

You send an invoice in one tax year and the client pays in the next. Which year does the income belong to? It depends on your accounting method: cash (count it when the money arrives) or accrual (count it when you earn it). Here's what the IRS, GOV.UK and the CRA say, which method freelancers usually use in each country, and what to record so either one works.

General information, not tax or legal advice. Not written or reviewed by a lawyer or an accountant. The timing table, the side-by-side summary, the records table, the checklist and all the wording are ours; the official items come from the US, UK and Canadian government pages linked below. They are general rules for any business, and none of them is a freelance law. Inventory, farming, long-term contracts, partnerships, companies, US state rules, Quebec and other countries were not checked. Official pages were read on 2026-10-17.

The short answer

Cash method: income counts when you receive it, and expenses when you pay them.
Accrual method (traditional accounting in the UK): income counts when you earn it or invoice it, even if the client pays later.
United States: you choose a method on your first return and need IRS approval to change it. Most individuals use cash.
United Kingdom: cash basis is the default for sole traders; you can opt out to traditional accounting.
Canada: the CRA says most self-employed income must be reported on the accrual method. Cash is only for farmers, fishers and self-employed commission agents.

1. The two methods in plain words
2. United States: cash, accrual and constructive receipt
3. United Kingdom: cash basis or traditional accounting
4. Canada: the accrual method for most self-employed income
5. Which year does it land in?
6. Sales tax has its own timing
7. Changing your method
8. Side by side
9. What to record on every invoice
10. Checklist
Free tools and kits
Where the sources differ
When to get advice
Related
Sources

1. The two methods in plain words

"An accounting method is a set of rules used to determine when and how income and expenses are reported on your tax return." (IRS: Publication 538, page date 30-Apr-2026).

Cash: "With cash basis you only record income or expenses when you receive money or pay a bill." (GOV.UK: Cash basis, page date 2021-07-21).
Accrual: "Under an accrual method of accounting, you generally report income in the year it is earned and deduct or capitalize expenses in the year incurred." (IRS). The UK calls this traditional accounting: "With traditional accounting you record income and expenses by the date you invoiced or were billed." (GOV.UK).

The difference is mostly about timing: which tax year an invoice falls in. Invoices that are never paid are the main exception (see section five).

2. United States: cash, accrual and constructive receipt

Choosing: "You choose an accounting method when you file your first tax return. If you later want to change your accounting method, you must generally get IRS approval." "You must use the same accounting method from year to year." (IRS: Publication 538).
Who uses cash: "Most individuals and many small businesses (as explained under Excluded Entities and Exceptions, later) use the cash method of accounting." "The following entities generally cannot use the cash method, including any combination of methods that includes the cash method." The list that follows on the IRS page starts with corporations other than S corporations (IRS).
Cash method income: "Under the cash method, you include in your gross income all items of income you actually or constructively received during the tax year." "Income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of it." "If you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it."
Holding a check: "You cannot hold checks or postpone taking possession of similar property from one tax year to another to postpone paying tax on the income."
Cash method expenses: "Under the cash method, generally, you deduct expenses in the tax year in which you actually pay them." "If you use the cash method for reporting your income, you must use the cash method for reporting your expenses."
Accrual income: income counts when the "all events test" is met. "This test is met when all events have occurred which fix your right to receive the income and you can determine the amount with reasonable accuracy."
Deposits and other advance payments: "Generally, you report an advance payment for goods, services, or other items as income in the year you receive the payment. However, if you use an accrual method of accounting, you can elect to postpone including the advance payment in income until the next year. However, you cannot postpone including any payment beyond that tax year." (all from IRS: Publication 538).
On your return: Schedule C asks for your method on line F. "Generally, you can use the cash method, an accrual method, or any other method permitted by the Internal Revenue Code. In all cases, the method used must clearly reflect income." "If you use the cash method, show all items of taxable income actually or constructively received during the year (in cash, property, or services)." (IRS: Instructions for Schedule C, page date 30-Apr-2026). See our Schedule C guide.

The IRS page is the HTML edition of "Publication 538 (01/2022), Accounting Periods and Methods" (Revised: January 2022); its page was last reviewed on the date shown in Sources. For payment apps and card processors, the timing of the money is separate from any form they send you: see Form 1099-K and payment apps.

3. United Kingdom: cash basis or traditional accounting

The default: "From the 2024 to 2025 tax year, cash basis is the default method of accounting. You must opt out if you want to use traditional accounting or cannot use cash basis accounting." (GOV.UK: Business records if you're self-employed, page date 2015-01-23). "Cash basis accounting is the standard way to record your income and expenses if you’re a sole trader or partnership without corporate partners." "This means you’ll not need to pay Income Tax on money you have not yet received." (GOV.UK: Cash basis).
Who can use it: "You can use cash basis if you’re a sole trader or partnership without corporate partners." "You cannot use cash basis if your business is a:"
- limited company
- limited liability partnership
- partnership with one or more corporate partners
GOV.UK then lists special cases under "You also cannot use cash basis if you’re a:" One of them can matter to creative freelancers: a "farming or creative business with a fluctuating profit averaging claim" (GOV.UK: Who can use cash basis, page date 2021-07-21).
Recording income on cash basis: "Only record income you actually receive. Do not count any money you’re owed but have not yet received." "You can choose how you record when money is received or paid (for example, the date the money enters your account or the date a cheque is written), but you must use the same method each tax return." "All payments count - cash, card, cheque, payment in kind, or any other method." GOV.UK's example: "You invoiced someone on 15 March 2024 but did not receive the money until 30 April 2024. Record this income as received on 30 April 2024." "Only count the expenses you’ve actually paid." (GOV.UK: How to record income and expenses, page date 2021-07-21).
Traditional accounting: "You might choose this method if your business:"
- is complex, for example, it has high levels of stock
- needs to get finance - a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan
"When you send your Self Assessment tax return you’ll need to say that you’ve used traditional accounting." (GOV.UK: Cash basis). GOV.UK's example: "You prepare accounts to 31 March each year. You invoiced a customer on 28 March 2024. You record that invoice for the 2023 to 2024 tax year - even if you did not receive the money until the next tax year." (GOV.UK).

The tax year runs 6 April to 5 April. Where to tick traditional accounting on the return, and how equipment is treated under each method, is in UK Self Assessment for freelancers. "Talk to a tax professional (such as an accountant) or legal adviser if you need help." (GOV.UK).

4. Canada: the accrual method for most self-employed income

The rule: "Farmers, fishers, and self-employed commission agents can use the cash method or the accrual method to report income. All other self-employment income must be reported using the accrual method." (CRA: Guide T4002, chapter one, page date 2026-04-16).
Accrual: "When you use the accrual method you must:"
- report income in the fiscal period you earn it, no matter when you receive it
- deduct expenses in the fiscal period you incur them, whether or not you pay them in that period
"Incur usually means you either paid or will have to pay the expense."
Cash, where it's allowed: "When you use the cash method you must:"
- report income in the fiscal period you receive it
- deduct expenses in the fiscal period you pay them
Your year: "Self-employed individuals generally have to use a December 31 year-end." (all from CRA: Guide T4002).

So a Canadian freelancer who invoices in December and is paid in January generally reports that income in the year it was earned. You report it on Form T2125: see our Form T2125 guide. The CRA pages we read don't explain how deposits for work not yet done are treated; ask an accountant.

5. Which year does it land in?

Common freelance situations under each method. This is our general summary of sections two to four, not official wording; check your own case against the official pages.

Situation	Cash method (US cash, UK cash basis)	Accrual (US accrual, UK traditional, Canada)
You invoice before your year ends and the client pays after it	Counts in the year the money arrives	Generally counts in the year you earned it, which is usually the year you did the work and invoiced
A client pays a deposit before the work starts	Counts when you receive it	US: generally the year you receive it; if you qualify, you can elect to put off the part you haven’t earned yet to the next year, but no further. UK and Canada: not checked here
A client never pays	Never counted, because the money never arrives	Already counted when you earned it; relief for a bad debt has its own rules
Money sits in your payment app or account and you haven’t moved it	US: counts once it’s credited or available to you without restriction. UK: use the receipt date rule you chose, every year	Follows when you earned it, not when you move the money
You get a check or cheque before your year ends and deposit it after	US: you can’t hold checks to put off the tax. UK: depends on the receipt date rule you chose	Follows when you earned it
You pay a business bill after your year ends	Deducted when you pay it	Generally deducted in the year the expense is incurred

For invoices that are never paid, and what the official pages say about bad debts in each country, see client disputes an invoice or pays only part. For how to invoice deposits, see freelance deposits and retainers.

6. Sales tax has its own timing

Your income tax method doesn't decide when sales tax is due.

UK VAT: "Usually, the amount of VAT you pay HM Revenue and Customs (HMRC) is the difference between your sales invoices and purchase invoices. You have to report these figures and pay any money to HMRC even if the invoices have not been paid." "With the Cash Accounting Scheme you:"
- pay VAT on your sales when your customers pay you
- reclaim VAT on your purchases when you have paid your supplier
"To join the scheme your VAT taxable turnover must be £1.35 million or less." (GOV.UK: VAT Cash Accounting Scheme, page date 2018-02-08). See UK VAT registration threshold.
Canada GST/HST: "You have to calculate your net tax for each GST/HST reporting period and report this amount on your GST/HST return." "To do so, calculate:"
- the GST/HST collected or that became collectible by you on your taxable supplies made during the reporting period
- the GST/HST paid and payable on your business purchases and expenses for which you can claim an input tax credit (ITC)
(CRA: Calculate the net tax, page date 2024-09-18). See GST/HST and setting money aside.
US sales tax is set by each state and wasn't checked for this guide.

7. Changing your method

US: "Once you have set up your accounting method and filed your first return, generally, you must receive approval from the IRS before you change the method." The IRS lists this as one example that needs approval: "A change from the cash method to an accrual method or vice versa." (IRS: Publication 538). "To change your accounting method, you must generally file Form 3115. You may also have to make an adjustment to prevent amounts of income or expense from being duplicated or omitted. This is called a section 481(a) adjustment." (IRS: Instructions for Schedule C).
UK: "You might have to make some adjustments if you switch to traditional accounting." (GOV.UK: Cash basis).
Canada: "If you decide to change from the cash method to the accrual method:"
- get permission from your tax services office
- ask for this change in writing before the date you have to file your income tax return
- explain why you want to change methods in your letter
"The first time you file your income tax return using the accrual method, make sure you include a statement that shows each adjustment made to your income and expenses." Going the other way: "If you decide to change your method of reporting income from the accrual method to the cash method, use the cash method when you file your next income tax return." "Make sure you include a statement that shows each adjustment made to your income and expenses because of the difference in methods." (CRA: Guide T4002). Remember that cash is only open to farmers, fishers and self-employed commission agents.

A switch can make the same invoice count twice, or not at all, in the changeover year. That's what the adjustments in all three countries are for, so get help before you change.

8. Side by side

Question	United States	United Kingdom	Canada
Usual starting point for a freelancer	You pick a method on your first return; the IRS says most individuals use cash	Cash basis, unless you opt out	Accrual for most self-employed income
Who can use cash	Most individuals; some corporations and partnerships can’t	Sole traders and partnerships without corporate partners, with some exceptions; not limited companies	Only farmers, fishers and self-employed commission agents
When income counts on cash	When actually or constructively received	When you receive the money	In the fiscal period you receive it (where cash is allowed)
When income counts on accrual	When earned (the all events test)	Traditional accounting: by the date you invoiced	In the fiscal period you earn it, no matter when you receive it
Switching method	Generally needs IRS approval and a form, with an adjustment so nothing is counted twice or missed	Allowed; you might have to make adjustments	Cash to accrual needs permission in writing first
Sales tax timing	State sales tax: not checked here	VAT usually follows invoices; the Cash Accounting Scheme follows payments	GST/HST collected or collectible in each reporting period

Our summary of sections two to seven, not official wording. Companies, partnerships and inventory are left out.

9. What to record on every invoice

Keep these for each invoice and you can total income either way (general practice, not an official list):

Record	Why it matters
Invoice date	Accrual and traditional accounting usually start from it
When the work was done	Accrual income is earned when the work is done, which can fall before the invoice date
Due date	Shows what’s late and what may turn into a bad debt
Date paid and amount received	Cash methods count income on this date; record part payments separately
How you were paid	Bank transfer, card, payment app or cheque; choose one rule for the received date and keep it
Unpaid invoices at year end	On accrual they’re usually already income; on cash they count when paid

What an invoice itself must show is in how to write a freelance invoice; for invoices in other currencies, the exchange-rate date question is in invoicing international clients. Expenses follow the same split: see how to track freelance expenses.

10. Checklist

Know which method you use now (look at last year's return, or ask whoever prepared it).
Know which methods your country allows for your kind of work.
Use the same method every year, for income and expenses.
Record the invoice date, the work dates, the due date and the date paid for every invoice.
Pick one rule for the "received" date (money in your account, or the day a cheque arrives) and keep it.
At year end, list unpaid invoices and deposits for work not yet done.
Check your sales tax timing separately from income tax.
Get advice before you change method.

Your method also shapes what you set aside for US estimated tax, UK payments on account and CRA instalments.

Free tools and kits

Our free invoice generator runs in your browser; nothing you type is sent or saved. It prints the invoice date and the due date.
Our paid Freelance Billing Kit by Small Rows (US$12, one-time) keeps both dates for every invoice: the Invoices tab has an "Issue date" and a "Paid date" column, so you can total by either. Its Tax Set-Aside tab works from money actually received, by paid date, which is a cash-style view for saving. It doesn't choose your accounting method, work out taxable profit or prepare a return; if you report on the accrual method, total by issue date or work date yourself, or with your accountant.
All three kits together: the All-Kits Bundle by Small Rows (US$24, one-time).

Where the sources differ

Starting point: in the UK, cash basis is the default; in Canada, accrual is required for most self-employed income; in the US, you choose, and the IRS says most individuals use cash.
Words: the UK says cash basis and traditional accounting; the IRS and the CRA say cash method and accrual method.
When accrual income counts: the IRS uses the all events test, GOV.UK says by the date you invoiced, and the CRA says in the fiscal period you earn it.
What we did not check: inventory and cost of goods sold; long-term contracts; US state income and sales tax rules; how a US accrual taxpayer handles a bad debt; UK rules for partnerships and for moving between methods in detail (HMRC's helpsheet); how the CRA treats deposits for work not yet done; Quebec; companies and corporations in any country; the EU and other countries.

When to get advice

you want to change from cash to accrual or the other way round;
you're not sure which method you used on past returns;
you take large deposits or prepayments for work in a later year;
you work through a company, or you sell goods or keep stock;
you file in more than one country;
a large invoice sits across your year end.

Talk to an accountant or a tax adviser where you file. This page is general information only.

Sources

United States: IRS: Publication 538, Accounting Periods and Methods (page date 30-Apr-2026) · IRS: Instructions for Schedule C (Form 1040) (page date 30-Apr-2026)
United Kingdom: GOV.UK: Cash basis (page date 2021-07-21) · GOV.UK: Who can use cash basis (page date 2021-07-21) · GOV.UK: How to record income and expenses (page date 2021-07-21) · GOV.UK: Business records if you're self-employed (page date 2015-01-23) · GOV.UK: VAT Cash Accounting Scheme (page date 2018-02-08)
Canada: CRA: Guide T4002, chapter one (general information) (page date 2026-04-16) · CRA: Calculate the net tax (GST/HST) (page date 2024-09-18)

Checked 2026-10-17. Found a mistake? Tell us via Support.