Should I use cash or accrual accounting?
Most small businesses under $5M in revenue use cash basis accounting because it’s simpler and matches actual cash flow. You record income when you receive payment and expenses when you pay bills.
Accrual accounting records income when you earn it and expenses when you incur them, regardless of when cash changes hands. This gives a more accurate picture of profitability but is more complex to maintain.
You need accrual accounting if you have inventory, if your revenue exceeds $5M, or if you’re seeking outside financing. Banks and investors want accrual-basis financials because they show economic reality better than cash basis.
Some industries work better with accrual even if not required. Construction companies with long-term projects need accrual to match revenue with the costs of earning it.
Your CPA can advise which method works best for your situation. You can change methods later if your business grows or circumstances change, but switching requires IRS approval and careful planning.
More Questions
How long does bookkeeping cleanup take?
Most cleanups take two to four weeks depending on how many months you're behind and how messy the books are.
Read answerCan I do my own bookkeeping?
You can do your own bookkeeping if your business is simple and you have time to learn. But most owners who try end up with messy books that need professional cleanup.
Read answerWhat is payroll tax?
Payroll tax is the federal and state taxes you withhold from employee paychecks and pay on wages. This includes Social Security, Medicare, unemployment, and income tax withholding.
Read answerDo I need separate books for each business?
Yes. Each legal entity needs its own books. Mixing entities creates tax problems and pierces the liability protection that separate entities provide.
Read answerWhat does a bookkeeper do?
A bookkeeper records transactions, reconciles accounts, categorizes expenses, and produces monthly financial statements so you know where your business stands.
Read answerDo I need a bookkeeper?
If you're spending hours on your books, falling behind on monthly close, or making decisions without real numbers, you probably need a bookkeeper.
Read answerDFW's Trusted Bookkeeping Firm
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