Choosing an accounting method to use is an important decision. Once you choose one you are committed to it and it is difficult to change. You have two methods of accounting to choose from. One is the cash method and the other is the accrual method. It is hard to say which one is best for your particular situation but this article will try to give you some tips to help you choose.
Cash method accounting is good for small business owners. With this method you record information when money has changed hands. So you record your income when you receive payment for goods or services and when you actually pay for bills. This is a simpler method and involves less work. The disadvantage is that it is less accurate as you may have earned money but not received payment yet and you may have incurred bills but not paid them yet.
The accrual method is better for larger companies and must be used if you have a corporation. In this method income and expenses are recorded when they are incurred. If you sold a good or service the income is recorded even if you have not received payment yet. This method is good if you want more accurate accounting but it does require more record keeping and work.
The choice is up to you as to which method o use. But as I said earlier choose carefully. It is not always easy to change your method in the future.
Author: James C
Author Bio:
The author operates a site helping people find cheap auto insurance. Learn about insuring your car, truck or motorcycle and automobile safety.
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