Accrual vs. Cash Accounting for Small Business Taxes

The cash method of accounting for small business taxes involves determining your gross income for the year by adding up the payments and fair market value of property and services actually received during the year. This gross number is the basis upon which you make your deductions for the year. The accrual method of accounting is more accurate in the sense that it matches related income and expenses in the same fiscal year. Using this method, you would report invoices and expenses for the year, for activities that happened during the year, even if you have not yet received payment on the invoices or paid the expenses. For the purposes of obtaining a small business loan, the accrual method of accounting is a more realistic report of your company’s activity for a given year. Please contact us for more information about cash accounting, accrual accounting and small business taxes.