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What is the difference between a cash basis and accrual basis business? |
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There are two methods of accounting that a business can use -- cash basis or accrual basis. The most commonly used method is a cash basis model, which recognizes income and expenses for a given tax year when the income is actually received and expenses are actually paid. The accrual method of accounting differs from the cash basis because income is triggered when the taxpayer has the right to receive the income and expenses are created when the liability is incurred. Under the accrual method of accounting, businesses can establish a bad debt expense, which allows for an adjustment to unpaid accounts receivables that are deemed uncollectible and worthless. For more information, visit IRS Publication 538. |
