When starting a business, you have to determine the method you are going to use for accounting and paying taxes. The two choices are the cash method and the accrual method.
Cash Method
If you are looking for simplicity, the cash method is probably your best accounting choice. Generally, income and deductions can be claimed when payment is actually received or made. This is best shown with an example.
I open a small business and have to order business cards and stationary. I receive the products and pay the invoice on November 18, 2005. Under the cash method, I can deduct the cost on my 2005 tax return.
Some businesses are restricted from using the cash method. C corporations may only use the cash method if they have less than $5 million in gross revenues for a particular year. Professional Service Corporations can use the cash method without limit, while farming corporations can due so if gross revenues are less than $25 million. Tax shelters are prohibited from using the cash method.
Accrual Method
The Accrual Method of accounting is a bit more complex. Under this method, the focus in on the date the expense is incurred, not paid....
To view and download this full PLR article, you must be logged in. Registration is completely free. Once you create your account, you will be able to browse, search & downlod from our PLR articles database of over "1,57,897+" on 1,000's of niches and 200+ categories without paying a penny. Click here to signup...
