Cash vs. Accrual Method of Accounting
When forming a new business, it is important to determine whether the
cash
or accrual
method of accounting should be used for bookkeeping and tax purposes.
Generally any
business structure can choose to use the accrual method, however
there are limitations on who
can use the cash method of accounting.
According
to section 448 of the Internal Revenue Code, C. corporations,
partenerships that have a C corporation as a
partner, and tax shelters are not
permitted to use the cash method of
accounting. The following are exceptions to
this general rule: farming businesses,
qualified personal service corporations,
and entities that have gross receipts of
$5,000,000 or less. These businesses are
permitted to choose between the cash or
accrual method of accounting.
Our office would be happy
to assist you with any questions you may have on
this subject. Please refer to the
"Contact Us" link from the website's home-
page for our phone number.
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