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r_max
Level 1

Cash Basis vs Accrual Basis

This is my first year to file taxes with my small business.  I want to keep my books on an accrual accounting method.   However, I would like to use cash method for tax purposes.   Also, I have the automated sales tax version, which I believe is accrual method.  I want to make sure this doesn't affect my books in any way if I use the accrual method on QBO and file my taxes with the cash method.   Is there anything I would need to be aware of if I go this route?

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Best answer March 29, 2019

Best Answers
LuannMeador
Level 3

Cash Basis vs Accrual Basis

When you go to pay taxes you can flip the switch to cash - it will always default to accrual - but once you have gotten into the habit of checking reports before paying, your memorized reports (which you can automate to email to you) will help you remember to report and pay based on cash method.  

 

Another really good reason to use Cash method for sales tax when you are using Cash Method for income tax is that the numbers will agree.  A fast growing business can have a large but current accounts receivable that could make the reported Accrual Sales numbers VERY different from Cash Sales numbers and you want to tie all reported numbers to other reported numbers to prevent unwanted attention.

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2 Comments
LuannMeador
Level 3

Cash Basis vs Accrual Basis

Accrual method is the most accurate method and a good one to use for analyzing the business performance.  Cash basis for taxes usually delays tax liability which is helpful.  If you keep inventory you are not usually allowed to use cash method for tax purposes.  Where state law allows I would want to file sales tax on the cash basis because you do not want to pay sales tax you have not yet collected.  In order to keep all this straight I make custom reports: Balance Sheet - Tax, Profit & Loss Tax, Sales Tax reports (in cash basis) so that I can quickly run the right report with the right settings, but I do keep the books set to accrual for all other reports.

 

If you are a fast growing business this will allow you to delay taxes legally and use that money as seed money when a business needs it the most.

LuannMeador
Level 3

Cash Basis vs Accrual Basis

When you go to pay taxes you can flip the switch to cash - it will always default to accrual - but once you have gotten into the habit of checking reports before paying, your memorized reports (which you can automate to email to you) will help you remember to report and pay based on cash method.  

 

Another really good reason to use Cash method for sales tax when you are using Cash Method for income tax is that the numbers will agree.  A fast growing business can have a large but current accounts receivable that could make the reported Accrual Sales numbers VERY different from Cash Sales numbers and you want to tie all reported numbers to other reported numbers to prevent unwanted attention.

View solution in original post

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