By Amanda Karen | CrunchSum
In QuickBooks Online you can either choose to use cash as your reporting basis or accural. Each method is discussed in more detail below including the impact that each has on your financial reporting. The main differences lie in when sales and purchases are recorded.
Income is reported at the point in time that you receive payments (when cash is received) from your customers/clients. Expenses are reported at the point in time that you pay bills (when cash is paid out).
Income is reported as soon as your customer/client is billed. Expenses are reported at the point in time that you receive the bill (incurred). In a nutshell, under the accural method you record transactions when they occur, rather than when money exchanges hands.
Cash vs. Accrual and Taxes
The main way that the reporting method you choose for your business finances impacts your business is when it comes to taxes.
Under the cash method if you incur expenses during the end of 2012, but don’t end up paying them until early 2013, you will not be able to use these expenses to reduce your 2012 taxable income. Under the accrual method, you are able to include all incurred expenses (not just those that have actually been paid) that took place during 2012, to reduce your 2012 taxable income.
When using the cash method, if you issue several invoices at the end of 2012, but do not receive payment for these invoices until early 2013, this income will be recorded on your 2013 tax return. If using the accrual method all issued invoices at the end of 2012 would be included as part of 2012’s taxable income.
*The materials on this website are provided for informational purposes only and do not constitute legal advice. Please confirm with your CPA which reporting basis you should use.
Which reporting method do you use for your business and why?
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