Accrual–cash basis (hybrid system)

Managing accounting can seem complex, especially for those who want to focus on daily operations without getting lost in invoices and transactions. The Accrual–Cash method is an accounting approach commonly used by small businesses and professionals who record on a cash basis, but at year-end must include outstanding invoices to and from clients and suppliers.

The Accrual–Cash method is a hybrid accounting system that combines the cash principle during the year with the integration of open invoices at year-end, following the accrual principle.

With this method:

• Revenue and expenses are recorded when cash is received or paid (cash basis)
• At year-end, to determine the actual revenues and expenses, outstanding invoices from clients and suppliers are recorded.

The Accrual–Cash method therefore represents an intermediate solution between the accrual method and the cash method, allowing for a clear view of the financial situation without the complexity of full accrual accounting.

Who it's for

This is a solution designed for those who want to work simply during the year, but obtain a year-end balance sheet that complies with the accrual principle. The Accrual–Cash method is particularly suitable for:

• freelancers
• artisans and small businesses
• service providers
• businesses that receive many invoices from suppliers
• businesses that issue few invoices and collect payments at a later time
• entities applying VAT on a cash basis (based on actual receipts and payments)

When it is not recommended

This method is not suitable for:

• entities applying VAT based on invoicing (at the time of issuing or receiving an invoice)
• companies that must keep full accrual-based accounting
• businesses with more complex accounting obligations
• situations requiring an official accrual-based financial statement

Why choose this method

With digital payment systems, most transactions today go through the bank. By importing bank transactions, the accounting is almost ready. There is no need to manually enter every invoice anymore.

This brings real advantages: less time spent on data entry, reduced risk of errors, and above all, the ability to always have an up-to-date overview of your liquidity. And for SMEs, liquidity is not a minor detail—it’s a key element in managing the business.

The accrual–cash method meets these needs:

• Time savings – no need to record each invoice when it’s issued or received
• Greater simplicity – less bureaucracy and complexity
• Always up-to-date data – thanks to imported bank transactions
• Liquidity control – the most important figure for managing actual inflows and outflows

Limitations of the accrual–cash system (and how to manage them)

Like any method, the accrual–cash approach has its limitations. During the year, the financial result mainly reflects receipts and payments; outstanding invoices are recorded at year-end to complete the financial statements. This means the economic picture may be partial.

Here are the main limitations:

• Receivables and payables are not visible during the year – open invoices appear only at the end of the period
• Partial view of accrued revenue/expenses – only those already paid are visible
• More work at year-end – additional entries are required (open invoices, accruals, deferrals, depreciation)
• Not suitable for all companies – highly structured businesses may prefer full accrual accounting

With Banana, these limitations are easily managed — you can add invoices and adjustments at any time, gradually transitioning to full double-entry accounting.

How Banana simplifies the accrual–cash method

With Banana Accounting, you can manage the Accrual–Cash method by working primarily with imported bank transactions throughout the year, which are then completed using automatic rules. Outstanding invoices and period-end adjustments can be recorded when needed, to produce an accrual-compliant balance sheet.

• Import your bank transactions
  • Download the file from your e-banking (ISO 20022, CSV, MT940, etc.)
  • Import your bank transactions into Banana.
• Apply automatic rules
  • Define rules to classify transactions (counterpart, VAT code, cost center)
  • On the next import, Banana will automatically complete the transactions.
• Monitor your accounts in real time
  • Balance sheet, cash flow, margins, and VAT are always up to date with the latest import
• Manage open invoices at year-end
  • Unpaid customer invoices → Customers to Revenue
  • Unpaid supplier invoices → Expenses to Suppliers
  • Typical adjustments → accruals, deferrals, depreciation, exchange rate differences
• Generate an accrual-compliant balance sheet, ready for banks, shareholders, and tax authorities.

An advantage also for fiduciaries and accountants

The accrual–cash system is also valuable for professionals managing clients’ accounts. They no longer have to wait for the client to send every invoice — accounting can be built starting from bank transactions, avoiding work overloads and drastically reducing time spent. When needed, they can complete the accounts with year-end adjustments. This approach allows handling more mandates in less time and offering more efficient services.

• Less manual work – no need to enter every client invoice as soon as it is issued or received
• Ready-to-use accounting – start directly from imported bank transactions
• More clients managed – saved time can be dedicated to consulting and analysis
• Professional financial statements – at year-end, add the necessary transactions to obtain complete accounts

With Banana, fiduciaries can provide faster and more efficient services, increasing the value delivered to clients.

Accounting methods and VAT in Switzerland

In Switzerland, regarding VAT (MWST/TVA), depending on when VAT becomes due:

• Accrual method – VAT is due when you issue an invoice to the customer or receive one from the supplier
• Cash method – VAT is due when you collect a payment from the customer or make a payment to the supplier
• Accrual–Cash method – VAT becomes due at the time of collection or payment, as in the cash system

Summary

• If you use the accrual method – VAT is recorded when the invoice is issued
• If you use the cash method – VAT is recorded only when the payment is actually received

In Switzerland, both cash and accrual accounting methods are allowed for VAT declarations, provided the conditions for using the cash method are met (typically annual turnover below CHF 5 million).

• More information on how VAT works in Switzerland.

A hybrid system for Switzerland and abroad

Here is a brief list of real-world examples from those who use, recommend, or promote a hybrid approach to accounting both in Switzerland and internationally:

• Banana.ch – VAT on collection and year-end accruals and deferrals
  Explains the hybrid method as an optimal practice for those using cash-based accounting but integrating outstanding items at year-end for a complete balance sheet.
• Raiffeisen – Digital accounting with e-banking and AbaNinja (German, French and Italian only) 
  Demonstrates how, by importing bank transactions, payments can be automatically linked to invoices, avoiding duplicate entries and maintaining control over outstanding invoices.
• FiscoOggi (Italy) – Cash regime for small enterprises (Italian only) 
  The Italian regime for small businesses is actually a hybrid system: accounting is kept on a cash basis, but with year-end adjustments for inventory, depreciation, open invoices, etc.
• HMRC UK – Expanding the cash basis for the self-employed (PDF)
  Article explaining UK government measures to expand cash-basis eligibility while allowing for the carry-forward of profits and losses like under the accrual method.
• IRS (USA) – Publication 538: Accounting Methods
  In the United States, the hybrid method is legal and widespread: it allows using the cash basis for current transactions and accrual accounting for managing inventory, liabilities, accruals, etc.

Conclusion

At school we are taught that the cash and accrual principles are clearly distinct. But the reality of modern SMEs calls for a flexible, automated, and accurate system.

Banana Accounting Plus is the tool that combines the operational simplicity of the cash principle with the accounting completeness of the accrual principle.

Banana Accounting provides predefined templates for cash-based accounting, with the option to integrate receivables and payables based on the accrual principle.