ACCOUNTING METHODS

Accounting methods refer to the basic rules and
guidelines under which businesses keep their financial
records and prepare their financial reports. There are
two main accounting methods used for record-keeping:
the cash basis and the accrual basis. Small business
owners must decide which method to use depending
on the legal form of the business,
its sales
volume, whether it extends credit to customers, and
the tax requirements set forth by the Internal Revenue
Service (IRS). Some form of record-keeping is required
by law and for tax purposes, but the resulting
information can also be useful to managers in assessing
the company’s financial situation and making decisions.
It is possible to change accounting methods
later, but the process can be complicated. Therefore it
is important for small business owners to decide
which method to use up front, based on what will be
most suitable for their particular business.