Cash vs. Accrual: The Simple Choice
One of the most foundational decisions for a new business is choosing an accounting method, which determines when you report income and deduct expenses. The either/or dilemma is often between simplicity and compliance, especially if you have inventory. You must select a method when you file your first tax return, and you must use it consistently.
- Cash Method: The simpler method. You report income when you receive it and deduct expenses when you pay them. Many small businesses can use this method.
- Accrual Method: You report income when you earn it and deduct expenses when you incur them. You must use accrual if you have an inventory of items for sale.
For most new small businesses, the Cash Method is a Simple and Sound choice that minimizes complexity. Choosing consistently now builds a solid foundation and avoids having to get IRS approval to change it later.
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DISCLAIMER: This content is for educational purposes only and should not be considered personalized financial advice. Always consult with a qualified financial professional before making financial decisions.