| Small business owners are often asked by
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| | three prior years of business. If your
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| bankers, investors, and other interested
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| | business falls into this category, you
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| parties about which method of accounting
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| | must use the accrual method of
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| they are using to produce their company's
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| | accounting.
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| financial statements. The person
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| | The accrual method of accounting is the
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| reviewing your financial data needs to
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| | "correct" way to compile your financial
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| know this so they can accurately review
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| | statements. If you hire a CPA to compile
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| the numbers presented them. Both the
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| | your financial statements, they will
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| accrual and cash methods are accepted
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| | produce your financial statements in
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| ways of recording transactions, but each
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| | accordance with "GAAP" (Generally
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| method sometimes gives very different
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| | Accepted Accounting Principles). This
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| results in your bottom line profit.
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| | simply means that they will use the
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| The cash method of accounting is the most
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| | accrual method of accounting. What does
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| commonly used method. It is the easiest
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| | accrual mean? The timing of your business
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| way to record transactions and can
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| | revenue and expenses are better matched
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| normally be done by the business owner
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| | with this method. You record the sale of
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| and not an accountant. Simply put, the
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| | goods and services when they are invoiced
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| cash method records money when it comes
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| | or the job is complete. It does not
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| in, and money when it goes out. It is
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| | matter if you have collected the money
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| basically a mirror image of your business
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| | yet or not. Expenses are also recorded in
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| account check register. For example, when
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| | the company books when they are
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| a customer pays you money for goods and
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| | "incurred" or due and payable. They are
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| services, you then record the sale in
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| | not necessarily recorded when they are
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| your books. When you write a check or pay
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| | paid. This type of accounting will give
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| cash for an expense that is the moment in
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| | you a better picture of how your business
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| time when you enter the expense in your
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| | is actually performing and should be used
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| books. It's as simple as that. Most all
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| | when analyzing your business profits.
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| small businesses can use the cash method
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| | Neither method of accounting is wrong or
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| of accounting if they wish, unless they
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| | right. It is up to the business owner or
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| carry inventory and average over ten
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| | his accountant to determine which method
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| million dollars in gross sales in the
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| | will be used.
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