Let's take today's news of accrual reporting gone bad. Toys R Us execs, against the wishes of the federal government, received a combined over $41 million in bonuses which , du eto accrual reporting, were forward thinking, meaning in plain English> accrual sales said the company made more than it collected but the bonuses were tied to inflated income.
In our business, renting apartments, we report cash basis. We invoice monthly but, as is the nature of the beast, have a certain percentage of income that never happens. If we reported accrual we would be continually writing off unpaid invoices to bad debt. To us only cash in hand counts.
Think about it from a sole proprietor viewpoint, if you have to claim an extra 10%, representing unpaid invoices, for example as taxable income it just cost you an additional 15.3% off the bat for self-employment tax as well as yoru margunal tax rate on this unrealized profit.