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Re: Does Your Business Use Cash or Accrual Method Accounting?

Hello All!

 

Personally, I prefer to approach the books and how things are entered from an accrual perspective for my clients.  Being they are restaurants, we don't have a ton of A/R to consider, but locating purchases in the period they were received is extremely important for things like food & liquor costs.  

 

That being said, a large number of my clients report taxes on a cash basis.  This is probably due to the election of S Corporation status for many of them.  Some new places even still operate as sole props.  

 

So, at the end of the year, I do the JE's required to true up to a cash basis perspective.  This essentially just means adjusting any accruals that might be spanning the year, and farming out any pre-paid expense balances (like insurances) I might have been spreading over each period.  AND of course, refraining from doing some JE's... like the final payroll accrual.

 

My clients know that some categories expense-wise will be wonky in late December and early January.  And I usually run a set of year end management reports before I do these special JEs and before any large year end adjustments are made my the accountant.

 

For my own business, I approach it all much the same way.

 

I personally like the fact that I have both methods of viewing data in mind when setting up and keeping the books.  I know that both methods can't be used for taxes, but taking the extra time to keep books that 'work' both ways reporting wise can really lead to valuable insights and be a great tool in explaining consequences that are sometimes difficult to model.

 

Since I"m a bookkeeper my job is to keep books that can work for taxes, sure.

But my purpose, my goal, is to keep books that make real world things more clear-- to both the accountant AND the owner.

 

Kristen

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