Cash Basis or Accrual Accounting?

3 Replies

Question for the folks of BP for a project of mine. 

Are you filing your taxes using cash basis or accrual accounting? 

Bonus points if anyone knows data on how many non-employee businesses use cash basis vs. accrual accounting.

Thank you in advance! 

For Tax - you should consult with your tax expert.

When you keep track of your books on accrual basis you will be able to get cash flow reports, know what bills are due and who owes your money.

Where as on cash basis, you will be able to track money spend and received.

I always recommend Accrual Basis.

Cash Basis. 

I may transition my financial planning business to accrual at some point because I have many accounts receivable and it would be easier to use accrual method for taxes than the artificial entries I make every year to close my books and then re-open them.

@Joel Florek -  I am not an accountant, but I know a bit about cash vs. accrual accounting. 

Cash accounting is much simpler. It's simply shows your cash inflows and outflows in any given period. However, the downside is that it is difficult to see what is ACTUALLY going on in your business. A large, one-time expense could annihilate your bottom line and make it look like you had a horrible month. When really, you had a fine month from an operating perspective. 

Accrual accounting is a bit more difficult and requires various adjustments. However, you get a much better understanding of the business and there are tax advantages as well. For example, if a company annual subscription revenue and has its best month ever in December. They garnered $120,000 of subscription revenue. On a cash basis all of that revenue will be captured in the current year. On an accrual basis $110,000 of that will be pushed into the following year. Delaying the amount of taxes owed. 

Hope this helps!  

Craig Curelop, Real Estate Agent

Join the Largest Real Estate Investing Community

Basic membership is free, forever.