123ArticleOnline Logo
Welcome to 123ArticleOnline.com!
ALL >> Business >> View Article

Cash Or Accrual? What’s The Difference?

Profile Picture
By Author: Devin Herz
Total Articles: 39
Comment this article
Facebook ShareTwitter ShareGoogle+ ShareTwitter Share

When you start a business, you have many decisions to make. One of those is the method of accounting your business will use for reporting income and expenses on your tax return. It is an extremely important decision. With few exceptions, the method you choose can only be changed in the future with the IRS’s permission.

The two methods generally used are the cash method and the accrual method. The cash method is probably the easiest for most people to understand and the easiest for small business owners to use. This method recognizes income when you receive a payment from a customer, and a deduction is taken when you pay cash or write out a check for a bill you have to pay.

The accrual method recognizes income when the services are rendered or the product is sold, despite the fact that you may not get paid for several months. You have “accounts receivable” in the form of money customers owe you. Expenses are handled the same way. If you buy something today, but don’t pay for it until later, maybe even next year, you would deduct the cost now. What you owe for purchases you’ve made constitutes your “accounts ...
... payable.”

The cash method is easier to understand and more closely reflects how money is coming in and out of the business. However, it doesn’t tell you how much people owe you or how much debt the business owes. The accrual method better reflects how the business is actually doing, but it is more complex and, for most business owners, more difficult to understand.
All new business owners should sit down with their accountants to discuss the pros and cons of each method and to decide what works best for their business. Many businesses are required by tax law to use the accrual method for tax reporting.

If you have questions or need assistance with your business’ financials, our team is here to help. Reach out and schedule time with our financial professionals today: https://bas-pc.com/

Total Views: 203Word Count: 330See All articles From Author

Add Comment

Business Articles

1. Connect Your Clients In A Better Way With Digital Business Cards
Author: Angus Carruthers

2. Design Interiors Elevates Kitchen Living In Brighton With Bespoke, Functional Designs
Author: Kitchen Brighton

3. Make Your Small Business Run Smoothly With Telephone Answering Services
Author: Eliza Garran

4. Finding The Best Business Broadband Providers With These Tips
Author: Julian Serle

5. 3 Major Benefits Of Partnering With A Hosted Voip Service Provider
Author: Julian Serle

6. Understanding E-commerce Content Compliance: A Seller’s Guide
Author: Actowiz Metrics

7. Lucintel Forecasts The Cloud Orchestration Market In Germany To Reach $59 Billion By 2031
Author: Lucintel LLC

8. Lucintel Forecasts The Circuit Breaker Tester Market In United States To Reach $2 Billion By 2031
Author: Lucintel LLC

9. Leed, Estidama & Beyond: What A Green Building Consultant In Dubai Can Do For You
Author: GREEN BUILDING

10. Lucintel Forecasts The Circuit Breaker Tester Market In Japan To Reach $2 Billion By 2031
Author: Lucintel LLC

11. Mwhat To Look For In An Expense Management Software
Author: TrackHr App

12. Industrial Cleaning Contractors Limited Delivers Expert Industrial Painting And Dilapidations Services Across The Uk
Author: Expert Support

13. Lucintel Forecasts The Circuit Breaker Tester Market In Germany To Reach $2 Billion By 2031
Author: Lucintel LLC

14. How Proposal Writing Company Can Be Contributing In The Growth Of Your Business
Author: Mark Twain

15. Professional Proposal Writing Services And Succeed In Business, Here Is How!
Author: Mark Twain

Login To Account
Login Email:
Password:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: