Cash Accounting vs. Accrual Accounting – Which Should I Use?
Cash Accounting vs. Accrual Accounting – Which Should I Use?Answer: For tax purposes, you will need to determine an accounting method when you file your first tax return. The two accounting methods are cash accounting and accrual accounting. The methods are about timing of transactions and when a transaction is recorded. Cash Accounting In cash accounting, a transaction is recorded when money actually changes hands. Income is recorded when you receive the money; if you perform a service and bill a client for that service, you don’t record the income until the client sends you a check. Expenses are recorded when you pay them; if you receive a bill on August 15 and you don’t pay the bill until September 1, you don’t record the expense until September 1. Accrual Accounting In accrual accounting, the transaction is recorded when it is establis
