AccountingBLOCK - Tax and Accounting Forums


AccountingBLOCK - Tax and Accounting Forums » Taxes » Business » Using accrual method of accounting for tax purposes

Business Tax related discussion forum for small business owners. You can talk about general or complex tax issues.

Reply
Old 03-08-2008, 10:57 AM   #1 (permalink)
 
Status: Getting feet wet
Join Date: Mar 2008
Location: Florida
Posts: 38
Rep Power: 30 boolean will become famous soon enough
Default Using accrual method of accounting for tax purposes

What would be some advantages, to an individual taxpayer, of using the accrual method of accounting?

The only one I can think of would be that bad debts could be written off that would be non-deductible under the cash method.
boolean is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Sponsored links

Old 03-08-2008, 10:58 AM   #2 (permalink)
 
Status: Getting feet wet
Join Date: Mar 2008
Location: USA
Posts: 42
Rep Power: 30 bizark will become famous soon enough
Default

Accrual method is the most accepted method of accounting and it is as per GAAP. It is something based on conservative principle. Provide for all anticipated losses and do not account income till received. If you provide for anticipated losses, it just makes you prepare for the worst case scenario.
bizark is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 03-08-2008, 11:10 AM   #3 (permalink)
 ZahiD's Avatar
 
Status: Administrator
Join Date: Mar 2008
Location: Santa Clara, CA
Posts: 572
Blog Entries: 7
Rep Power: 10 ZahiD will become famous soon enough
Send a message via MSN to ZahiD
Default

For an individual there are no advantages. If you are talking about an individual who owns a business, then yeah, you do have advantages.

From what I have studied and so far analyzed, accrual accounting makes a whole lot sense then cash accounting. Your books are always reflecting the real value of your business and not underestimating it.

Under the cash method, you record income in the year it is received and expenses in the year they are paid. Under the accrual method, you record income in the year it is earned, regardless of when it is received, and expenses in the year they are incurred, regardless of when they are paid.

The U.S. Internal Revenue Service (IRS) does not require taxpayers to use one method or the other. What the IRS does require is that the method you use must clearly reflect your income and expenses, and enable you to file a correct income tax return.
__________________
Zahid H. Lilani
Tax Accountant,
eZeeTAX, Inc.
http://ezeetax.com
AccountingBLOCK is on Facebook and Twitter
ZahiD is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 12-26-2008, 08:00 PM   #4 (permalink)
 Helse's Avatar
 
Status: Moderator
Join Date: Dec 2008
Posts: 610
Blog Entries: 11
Rep Power: 32 Helse is on a distinguished road
Default

Possible advantage:

Constructing contract payment terms to advance realization of income into subsequent Fiscal Year(s). Ex.: Construction payments due (contingent upon event) in FY 2008 or Jan 1 FY 2009.

I promise to pay UPON COMPLETION OF JOB 1-3 in (next year). Ergo, the contractual obligation to pay clause, with a 'trigger, forestalls (accrual) allocation into subsequent FY.
Helse is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 01-04-2010, 11:00 PM   #5 (permalink)
 Laura Fenella's Avatar
 
Status: n00b
Join Date: Jan 2010
Posts: 4
Rep Power: 0 Laura Fenella is on a distinguished road
Default

hello guys,

With the accrual method, transactions are posted on the date they are created, regardless of whether they are paid yet.Example of accrual method: at the end of Oct. you bill for October's care. It is counted as October income, regardless of when the bill is paid.
__________________
Online Tax Preparation
Laura Fenella is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 04-11-2010, 10:35 PM   #6 (permalink)
 
Status: Senior Member
Join Date: Jan 2010
Posts: 54
Rep Power: 8 KH_Global is on a distinguished road
Default Accounting Principles...

What are the other accounting principles which should be followed while recording the various transactions of the business.
KH_Global is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 04-12-2010, 11:42 AM   #7 (permalink)
Pat
 
Status: Moderator
Join Date: Apr 2009
Location: USA
Posts: 152
Rep Power: 19 Pat will become famous soon enough
Default

KH,

Accruals are a means (method), not a principle, used in achieving the accounting principle of matching, which relates to recording assets/liabilities and/or revenues/expenses in the appropriate period.

Besides conservatism (mentioned above) a couple other principles are comparability, materiality, going concern and full disclosure. Google "accounting principles" for others.
Pat is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 06-13-2010, 07:29 PM   #8 (permalink)
 
Status: n00b
Join Date: Jun 2010
Posts: 11
Rep Power: 0 lacpa is on a distinguished road
Default

For tax purposes most business use the cash basis also but the accrual for book purposes. There are income limits and such where you have to use accrual but otherwise, if you are consistent, most SMALL businesses use cash basis also.
__________________
Los Angeles CPA-Newport Beach CPA
lacpa is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 06-14-2010, 06:24 PM   #9 (permalink)
 
Status: Senior Member
Join Date: Jan 2010
Posts: 54
Rep Power: 8 KH_Global is on a distinguished road
Default

ok. thanks

Robert
KH_Global is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Old 07-11-2010, 04:55 PM   #10 (permalink)
 
Status: n00b
Join Date: Jul 2010
Posts: 3
Rep Power: 0 zeldamae is on a distinguished road
Default

Here's another article that illustrates the difference between accrual and cash basis by presenting each method into two different income statements.

difference between accrual basis vs. cash basis accounting
zeldamae is offline  
Digg this Post!Add Post to del.icio.usBookmark Post in TechnoratiFurl this Post!
Reply With Quote
Reply

Bookmarks



Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On



All times are GMT -7. The time now is 04:23 PM.
Powered by vBulletin® Version 3.8.1
Copyright ©2000 - 2010, Jelsoft Enterprises Ltd.
Ad Management by RedTyger


Forum Sponsors: $40 Tax Preparation | Business Articles

Nav Item BG