CASHVS.ACCRUAL

A P R E S E N T A T I O N B Y J O H N J B O W M A N , J R |

A C C O U N T A N T

INCOME IS NOTCOUNTED UNTIL

CASH IS ACTUALLYRECEIVED , ANDEXPENSES ARENOT COUNTEDUNTIL THEY AREACTUALLY PAID .

YOU DON 'T HAVETO HAVE MONEYIN HAND OR

ACTUALLY PAYMONEY OUT , TO

RECORD ATRANSACTION .

VS

ACCRUAL

J O H N J B O W M A N J R | A C C O U N T A N T

CASH

J O H N J B O W M A N J R | A C C O U N T A N T

Which method is best for you?YOU ARE FREE TO CHOOSE WITH A FEW EXCEPTIONS

C H O O S I N G A M E T H O D

Small business

Less than $5

million a year

in sales

Cash Accrual

Sales over $5 million per

year

stocks an inventory and

your gross receipts are

over $1 million per year

J O H N J B O W M A N J R | A C C O U N T A N T

CashPros & Cons

Pro: provides a more accurate picture of how much actual cash yourbusiness has and you can deduct expenses in the year they are paid

instead of having to wait until the related revenue is earned and reportable.

Con: may offer a misleading picture of longer­term profitability. You alsoneed to report revenue as soon as payment is received, which means you

may end up paying tax on the gross amount if your deductible expenses

aren’t reported until a future tax year.

J O H N J B O W M A N J R | A C C O U N T A N T

AccrualPros & Cons

Pro: shows the fluctuation of business income and debts moreaccurately.ou can deduct expenses in the year you receive the underlying

service or property and become liable for payment, even if you don’t

actually make payment until a future tax year.

Con: Does not show accuracy in which cash reserves are available. Inaddition, you will have to report income in the year your customers have a

legal obligation to make payment, not at the time of actual payment.

Because of this, you may end up paying tax on money you didn’t receive

during the tax year.

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