CHANGING ACCOUNTING METHODS

In some cases, businesses find it desirable to
change from one accounting method to another.
Changing accounting methods requires formal approval
of the IRS, but new guidelines adopted in 1997
make the procedure much easier for businesses. A
company wanting to make a change must file Form
3115 in duplicate and pay a fee. A copy should be
attached to the taxpayer’s income tax return and the
other copy must be sent to the IRS Commissioners.
Any company that is not currently under examination
by the IRS is permitted to file for approval to
make a change.

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,