Posted by Pam/NM on 10/4/11 1:18pm
Msg #399604

Tax Experts: Cash vs. Accrual?

I switched this year to QB, and the default method of accounting is apparently accrual. Per my niece-bookkeeper, it's a booger to get QB to switch back, but there is a go-around. Up to this point, I have used cash method. Would there be any benefit to me switching over to accrual and what would the implications be? Or is it harder to switch and should I stay as cash only?
Thanks in advance!

Reply by John Tennant on 10/4/11 1:38pm
Msg #399606

Please check your P/M. n/m

Reply by John/CT on 10/4/11 4:20pm
Msg #399627

Re: Cash vs. Accrual?

Most small businesses opt for the cash method ... that is, you recognize income when it is received (not booked or billed). The accrual method is appropriate for large (i.e., stock) companies where reported income is more important (to stockholders) than collections. In our case, it doesn't make much sense for us to pay taxes for accrued income booked in one year, when the actual (cash) money is received in the year following ... and in some cases, never.

Reply by John/CT on 10/4/11 4:24pm
Msg #399628

Ooops, I didn't get to the thread below ...

before posting an asnswer to this one.

Reply by taxpro on 10/5/11 1:15pm
Msg #399688

Setup cash basis in QB

Edit > Preferences > Reports & Graphs. Select Cash or Accrual method. Then your unpaid invoices will not be included in Sales, and your unpaid bills will not be included in expenses.

You would need to notify IRS if changing accounting methods. Easier to stay with cash anyway.