A key difference between cash-settled and equity-settled transactions relates to how the settlement is effected and the accounting treatment.

For cash-settled share-based payment transactions, the entity is obligated to pay cash to the counterparty (usually employees or service providers) based on a predetermined amount or formula, typically unrelated to the price of the entity's own equity instruments.

In contrast, equity-settled transactions involve the issuance of the entity's own equity instruments (like shares or share options) to the counterparty. In these cases, the settlement involves transferring actual equity instruments to the counterparty upon vesting, impacting the entity's capital structure.

Under IFRS 2 Share-based Payment, equity-settled transactions require the entity to measure the fair value of the grant, with the primary difference being that the fair value of the equity instrument is recognized as an expense, with a corresponding increase in equity. For cash-settled transactions, the entity measures the cash-settlement liability at fair value, and the change in the liability's fair value is recognized as an expense or income in the income statement.

In summary, the main distinction lies in the method of settlement: with cash-settled transactions, the entity pays cash, while in equity-settled transactions, the entity issues its own equity instruments.