Answers · Bookkeeping
Cash Basis vs. Accrual Basis Accounting
Cash basis generally recognizes income when received and expenses when paid; accrual basis generally recognizes income when earned and expenses when incurred, subject to tax-specific rules.
How it works
The rule, and what it turns on.
Tax accounting methods are governed by IRC §446 and related provisions. Book and tax methods may differ, and changes can require consent/procedures.
Example
A December invoice collected in January is generally January income under cash basis but December revenue under accrual basis.
Common mistakes
What we see go wrong, and what we do instead.
- Switching methods informally.
- Assuming deposits equal taxable income.
A better approach
- Maintain accrual management books with a documented tax-basis conversion when permitted.
Authority
Where this comes from, so you can check it.
IRC §§446 and 451; Treas. Reg. §§1.446-1 and 1.451-1; IRS Publication 538.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
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