| When submitting tax figures to the IRS, there are | | | | or a computer for a day or two. When |
| 2 types of accounting methods to use. The 2 | | | | agreements or sales are completed on the road, |
| accepted methods are the accrual and cash | | | | outside the company walls, it takes discipline to |
| methods. The business is responsible for choosing | | | | get every sale receipt back to the file cabinet. |
| which method the company will use. | | | | If partial payments are made over a long period |
| Many issues can be factored into the decision or | | | | of time, cash accounting will work well to show |
| the selection can be as easy as a personal desire. | | | | consistent income. When using cash accounting, |
| Bigger companies usually take more procedures | | | | these transactions reflect the cash flow |
| into account like volume of sales, how much | | | | accurately. Since cash accounting records each |
| inventory is stored, number of sales, the past | | | | installment, the actual money received would be |
| experiences of an accountant, and the list keeps | | | | consistent and relatively even. Payment plans can |
| going. | | | | last for several years if the product or service is |
| The cash method of tax accounting records all | | | | very expensive. When longer plans are used for |
| transactions and income at the time of payment. | | | | larger sales, this method will show more |
| Even if the sale was made the previous year, | | | | consistency. |
| according to the tax accounting books, the | | | | When income from sales is needed to pay for |
| income is recorded when the payment is | | | | operating expenses, cash accounting will |
| physically received. | | | | accurately show the amount of money that was |
| For small businesses that may not pay a | | | | earned and can be used to pay those bills. |
| secretary or have an accounting staff, the cash | | | | Once the tax accounting method on a cash basis |
| method of recording tax accounting is fitting. With | | | | is selected, it is next to impossible to efficiently |
| this method, accounts and sales are left open until | | | | change the method. If a change to the accrual |
| the full payment is received. Using the cash | | | | method is desired, the cash method must have |
| method helps small businesses be aware of what | | | | been used for the last two consecutive years. At |
| accounts have been completed and closed and | | | | that time, a formal request must be submitted to |
| which sales have not been collected on yet. | | | | the Secretary of the Treasury. To make sure |
| The procedures of small businesses can range | | | | this process is done correctly and all the bases |
| anywhere on the spectrum. Some are very rigid | | | | are covered, the owner/officer of the business |
| and have all paperwork filed within minutes of the | | | | should consult with a certified public accountant. |
| transaction and some don't have access to files | | | | |