Which Accounting Method Is Best for Your Business?
Accounting Method is the way a company reports revenues and expenses. There are two primary accounting methods: Cash Accounting and Accrual Accounting. We’ll help you understand the differences between the two and then help you choose which is best for your company.
What’s the difference between Accrual Accounting and Cash Accounting?
- Cash Accounting is the simplest method. It’s commonly used for startups and small business (less than $5M in annual revenue per the IRS). As the name suggests, in this method transactions are only recorded when cash is spent or received. (We manage our personal finances in a similar way.)
- Accrual Accounting is slightly more detailed. This method matches the timing of your revenue and expense recognition. It’s ideal for any mid-sized or greater business (generating $5M or more annually). This creates an extremely accurate and consistently up-to-date depiction of what’s happening in your business. And accruals don’t wait on accounts payable or receivable – they take both into consideration in any transaction and don’t wait for an actual payment to occur. It follows the matching principle by matching an expense and revenue tied to one event or transaction within the business.
There are other factors to consider when selecting your Accounting Method, and the IRS has specific guidelines and different taxation laws for each method. But when you partner with us, we’ll do all the work for you. Milestone Financial considers every nuance of your business to find the perfect fit.
Ask us which method is best for your business and its future by getting a free consultation! Click here to get started!