Cash vs Accrual Basis Accounting

Which is best for YOUR company?

How does your business maintain your financials? Under the Tax Cuts and Jobs Act, taxpayers are eligible to select their accounting method according to the new limits in tax years beginning after December 31, 2017.

Taxpayers which have an average annual gross receipts that do not exceed $25 million on the 3-tax-year period before the testing year are not required to use the accrual basis of accounting.

Taxpayers which have an average annual gross receipts that do not exceed $25 million and are producers and/or resellers of both real and personal property are exempt from the application of the UNICAP rules (calculation to capitalize certain direct and indirect costs).

Taxpayers that have an average of $25 million or less in annual gross receipts aren’t required to maintain inventories. You may:

  1. Treat inventory as non-incidental materials or supplies (deduct the costs only as they are consumed or used in the business).
  2. Account for inventory using a method that conforms to their available for sale.

 

Most taxpayers generally prefer the cash method over the accrual method because it allows for more flexibility in managing the amount of taxable income in a certain year.

Before making a switch, please contact one of the Certified Public Accountants here at BWTP to determine which method is best to use for your business.

Mike Dempsey, CPA is a Senior Accountant with BWTP P.C. Read more about Mike here.

Leave a Reply

*

captcha *