Choosing Between Cash and Accrual for Your Accounting
When you first start your bookkeeping, you should choose two things: cash or accrual and when your fiscal year begins. Your fiscal year is going to be determined by your company's seasons (your bookkeeping service will help you with this), but cash and accrual is going to be a more personal choice.
What is the Difference Between Cash and Accrual?
With cash, you book your income and expenses when they're actually paid. Your bookkeeping service will book checks when they are cashed, and will book income when it's deposited to the bank. Most companies are going to use cash accounting, because it's far simpler. A small business accounting service may just default to cash, because the reports are easier to read. But there are benefits to accrual, too.
With accrual, you book your income and expenses when they happen. So, your revenue is booked when you create an invoice, and your debts are booked when they are incurred rather than when they are paid. This means that you can see outstanding income and outstanding debt, as well as what you have collected. Often, accrual is more complicated, but also more useful, because it is a truer picture of what you owe and are owed.
How Do You Choose Between Cash and Accrual?
Your small business accounting service will know best. Usually the simpler your company is, the more likely it is that you can use cash without a problem. Once your business becomes more complex, it's better to use accrual.
If you're looking for a bookkeeping service, they can help you figure out which type of accounting you want. Contact PC Accounting & Tax Services to find out more.