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Cash or Accrual Accounting? Part 2

November 21, 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 accrual basis accounting since you learned about cash basis accounting in the previous blog:  

Accrual basis accounting:

  • outlined by the Generally Accepted Accounting Principles (GAAP)
  • provides a clearer picture of a company’s overall finances
  • income and expenses are recorded when they’re billed and earned, regardless of when the money is actually received or taken
  • Benefits include
    • accrual accounting provides a more long-term view of your finances in comparison to cash basis accounting
    • more accurate financial picture
    • conforms to GAAP principles
  • Disadvantages are:
    • requires more resources due to it’s complexity
    • inaccurate short term view

Now that you know something about both of these accounting methods and if your business makes under $25 million in gross annual sales you can choose either method. You can make the choice by matching your business goals, your resources, and your financial requirements to the best accounting method for your business needs. Keep in mind the IRS requires companies to use and maintain the same accounting method to report taxable income for an entire year.

If you have any uncertainty, as always, speak with a CPA or tax professional. 


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

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