Cash versus Accrual: Let Our Rochester CPA Assist in Your Choice

The qualified Rochester CPA we will assign to your business as an independent accountant possesses the appropriate education, training and work experience in the related fields of bookkeeping, accounting and auditing. As such, he will be able to provide his professional – read: educated and informed - opinions on various matters in this regard.

One of the most important aspects of his work is providing guidance on the best accounting method to use – cash versus accrual. All other aspects of bookkeeping, accounting and auditing as well as compliance with business laws will be affected or influenced by your final decision on it. Let’s take a closer look at the pros and cons of both accounting methods, which our Rochester accounting firm can be of valuable assistance.
Basics of the Methods

Keep in mind that the Rochester CPA assigned to your business has comprehensive knowledge of both types of accounting methods. Don’t hesitate to ask questions because the more you know about the methods, the more effective you will be able to use it in your business. Let’s start with the basics.

In cash accounting, cash outflow and cash inflows are recognized as recordable transactions as soon as the money changes hands (i.e., from your business to the supplier or from the customer to your business). As such, sales made without cash payments (accounts receivables) are not considered as income in the same way that expenses made without cash payments (accounts payable) are not recorded as expenses on the books of accounts.
In accrual accounting, the transaction including receipt of income and payment of expenses are counted regardless of whether cash and other assets actually exchanged hands. Income is recognized when sales are made and expenses are recorded when these are also made. Your assigned Rochester CPA will usually recommend this method for compliance with existing laws, rules and regulations on the United States including its tax laws.

Impact on Tax Planning

Your choice between cash and accrual method of accounting will affect your declaration of taxes. Keep in mind that you want to minimize your declared income and/or maximize your declared expenses in the year when your estimates point to the highest income. The result: You will pay lower taxes without being slapped with an IRS complaint.

Tips that the Rochester CPA may provide on this matter:

• For cash accounting - Ask your customers to pay their accounts during the year when you plant to take in the highest income. Pay your bills during the year when your estimates point to the highest income, thus, allowing for higher deductible expenses and lower taxes for the year.

• For accrual accounting - Send out the bills for your customers’ account receivables before the end of the present fiscal year or after the beginning of the succeeding fiscal year; decide the year when the income should be recorded. Ask the vendors to send you their bills for your accounts payable in the year when your financial plan demands the highest expenses.

Are you confused by now? Don’t be. That’s where you can turn to our Rochester CPA in particular or our Rochester accounting firm for professional assistance. for more inquiries please click here