Accounting Methods

What are the different types of accounting methods?

An accounting method is a set of rules used to determine when and how income and expenses are reported on your tax return.

Generally, you can figure your taxable income under any of the following accounting methods.

• Cash method.

• Accrual method.

The Cash Method

This is when Revenue is reported on the income statement only when cash is received.
Expenses are only recorded when cash is paid out. The cash method is mostly used by small businesses and for personal finances.

The Accrual Method

This is when Revenue is accounted for when it is earned. Typically, revenue is recorded before any money changes hands.
Unlike the cash method, the accrual method records revenue when a product or service is delivered to a customer with the expectation that money will be paid in the future. Expenses of goods and services are recorded despite no cash being paid out yet for those expenses.

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