For most foreign-owned companies in Indonesia, accrual accounting is the appropriate basis for financial reporting. However, Indonesian tax rules also recognize specific cash-based bookkeeping arrangements for qualifying taxpayers. These are separate issues: the accounting method used for financial statements is not necessarily the same as the method allowed for tax purposes.
How Do Cash and Accrual Accounting Differ?
Under accrual accounting, revenue is recognized when it is earned and expenses when they are incurred, rather than when cash changes hands. This means accounts can show receivables, payables, accrued expenses, advance payments, and other transactions that remain outstanding at the reporting date.
Under cash accounting, income and expenses are generally recognized based more closely on when payment is received or made.
However, Indonesian tax rules should not be understood as offering companies a choice between two completely separate systems. Even when cash-based tax bookkeeping is allowed, some transactions are still accounted for under specific rules.
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For example, tax bookkeeping using the cash basis is treated as a mixed system. Sales must include cash and non-cash transactions, inventory must still be accounted for, and qualifying assets remain subject to depreciation or amortization.
For a foreign-owned company (PT PMA), accrual accounting will generally be the appropriate basis for financial reporting under applicable Indonesian Financial Accounting Standards (SAK). It records unpaid customer invoices, supplier liabilities, advance payments, inventory, fixed assets, and intercompany balances in the periods to which they relate. This also makes it easier to consolidate the Indonesian company’s accounts into an overseas parent’s accrual-based financial statements.
Does the IDR 4.8 Billion Threshold Determine the Accounting Method?
No. The IDR 4.8 billion revenue threshold appears in several areas of Indonesian tax law, but it should not be treated as a universal dividing line between cash and accrual accounting.
The threshold remains relevant to VAT registration. Businesses making taxable supplies that exceed the applicable threshold can become subject to mandatory VAT registration, while qualifying businesses below it may register voluntarily.
However, VAT registration does not by itself determine the accounting basis a company must use for its financial statements.
Under Government Regulation No. 20 of 2026, the 0.5% final regime is limited to qualifying individual taxpayers, single-shareholder individual companies (perseroan perorangan), and cooperatives with qualifying turnover not exceeding IDR 4.8 billion.
Under PP 20/2026, an ordinary PT, including a standard PT PMA, is no longer newly eligible for the 0.5% final UMKM income tax regime simply because its turnover is below IDR 4.8 billion. Transitional rules can still apply to some taxpayers that were already using the regime.
When Can Cash-Based Tax Bookkeeping Be Used?
Indonesian tax rules allow certain taxpayers to maintain tax bookkeeping using the cash basis.
A company may qualify for cash-based tax bookkeeping if it is allowed to use the accounting standards for micro and small businesses and its gross turnover did not exceed IDR 4.8 billion in the previous tax year.
This is not a pure cash system where transactions are recorded only when money is received or paid. Sales must still include cash and non-cash transactions, inventory must be accounted for when calculating cost of sales, and depreciable or amortizable assets remain subject to depreciation or amortization.
Does VAT Registration Require Accrual Accounting?
VAT registration creates separate tax-recording and reporting requirements, but it does not automatically force a company to change its financial accounting basis.
A registered taxable entrepreneur (PKP) must comply with Indonesia’s VAT rules, including the issuance and reporting of tax invoices and the calculation of output and input VAT.
The timing of VAT can also differ from when cash is received. As a result, a business cannot assume that its VAT liability will always follow the timing of customer payments.
How Does Accrual Accounting Affect Revenue Recognition?
Under accrual accounting, revenue is recorded when the company has earned it, rather than simply when the customer pays.
For example, a company providing services over several months may need to recognize revenue as the services are performed even if payment is received later.
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This creates a difference between reported revenue and cash received. A profitable company can therefore still have outstanding receivables, while a company that receives customer advances may hold cash before all of that amount qualifies as accounting revenue.
Accrual accounting also records liabilities before they are necessarily paid, allowing costs to be matched more closely with the period in which the obligation arises.
Does an Audit Change the Accounting Requirement?
An external audit is required in certain cases, including where a company has assets or annual turnover of at least IDR 50 billion (USD 2.84 million), raises or manages public funds, issues debt securities to the public, or falls within another statutory audit category.
For a PT PMA that requires an external audit, accrual accounting records receivables, payables, fixed assets, inventory, provisions, and other balances that may need to be verified at year-end.
An overseas parent, lender, investor, or potential buyer may also require financial statements prepared under an accrual-based accounting framework even where the Indonesian company has not crossed a statutory audit threshold.
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MAP Resources Indonesia assists foreign investors with Indonesian accounting structures, financial reporting, tax bookkeeping, and transitions to accrual-based reporting. Contact us at info@mapresourcesindonesia.com.
