Cash or Accrual Accounting? Part 1

November 19, 2019 by OSYB Staff

As a business owner, you have two accounting methods to pick from, either cash basis accounting or accrual basis accounting. Intuit QuickBooks shares a quick summary of cash basis accounting that you should familiarize yourself with:

Cash basis accounting:

• simpler of two methods and does not consider accounts payable or receivable
• applies payments only upon receipt and records expenses when money leaves the account
• for businesses that make less than $25 million in sales a year and does not sell merchandise directly to consumers, this method could be a good fit
• benefits include:
  • ease of use
  • improves cash flow
  • for income tax purposes one of the perks is that payments are not recorded till received, so for items sold in November and payment not received till January, the taxes will not be due until the next January
• drawbacks include:
  • inaccurate financial picture
  • no accounts receivable or payable records
  • does not conform to Generally Accepted Accounting Principles (GAAP) and if your business makes more than $25 million you may have to update your accounting practices to the accrual method

Find out about the accrual method of accounting in our next blog.

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For full article: Cash Vs. Accrual Accounting:  What’s Best for Your Small Business

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