Regardless of whether method of accounting you use, you need to check which option allows you for deferring taxable income to a subsequent tax year and accelerating deductions to the current year.
The cash basis of accounting recognizes revenues when cash is received, and expenses when they are paid. With the cash basis of accounting method, you record income when you actually receive payment from customers and have the cash in hand. Similarly, you record expenses when you write a check and the cash leaves your bank account. This method does not recognize accounts receivable or accounts payable. Many small business prefer to use the cash basis of accounting because it is simple to maintain.
In the accrual accounting, expenses and revenue are matched, providing a company with a better idea of how much it is spending to operate each month and how much profit it is making.With the accrual method, income and expense are recorded when they are obligated to be paid. So, if you make a sale, you record it as income on the date of the sale, not when you actually pay for it. And you record an expense the day you incur the expense, even if you don't actually pay for it until a later date.By calculating accounts receivable and accounts payable, you'll have a clearer picture of profits for any given period.
Of course, you will have to pay taxes during one year or the next, but you can strategize to the best of your ability to decrease your liability as much as you can.
We can help you to figure out which method is best for you.
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