Cash or Accrual Which Accounting Method is Best for your Business?

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COGNEESOL
Cash or Accrual Which Accounting Method is Best
for your Business?
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Keeping accurate accounting records is vital for
every business, whether it is small or large.
Accounting plays a significant role in your
business, boosting financial decisions.
Therefore, choosing the right accounting method
for your business is vital.
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TO TRACK THE INCOME AND EXPENSES, THERE ARE
BASICALLY TWO METHODS USED BY BUSINESSES
CASH METHOD
ACCRUAL ACCOUNTING METHOD
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Cash Accounting Method
Most of the small businesses and startups prefer
cash method because it is simple than the accrual
method. With the cash accounting method,
accounting books are managed according to the
cash inflow and outflow in the business. 
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• When cash is received from a customer, revenue is
  added in the income statement, and when companies
  pay bills, it is recorded accordingly.

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Benefits of Cash Method

• Tracking cash-flow of the business is much easier
  with the cash method

• For small businesses, managing accounting books
  is less costly with this method

• You dont need to pay taxes on the money that
  youve not received yet you will only pay taxes
  on the earned money.

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Disadvantages of the Cash method

• With cash method, you dont record accounts
  payable and receivables, which can create
  difficulties when your business does not receive
  immediate payments.

• It can create an inaccurate financial picture as
  it is tough to track profits of the month.

• The higher tax bill is another con of cash method
  as you cannot deduct the expenses that you have
  not been paid on the tax return.

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Accrual Accounting Method
Accrual accounting method is a complicated method
that is used by large businesses. In this
process, enterprises maintain records of balances
that are yet to be paid. More so, the balance
sheet is also prepared to maintain offsetting
asset or liability, which is crucial for
understanding the current financial status.
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Benefits of the Accrual Method

• You can track business performance and analyze
  which month is most profitable for you and which
  month is less profitable.

• Your tax bill will be less as you can deduct
  expenses for the taxes for those products that
  you have purchased but didnt pay for them.

• It is easy for you to make financial decisions as
  you can get a clear picture of the companys
  financial position.

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Disadvantages of Accrual Method

• The accrual accounting method is a complex one.
  You need to keep a track and report of all the
  invoices.

• It is an expensive method because you need to buy
  accounting software and accounting services are
  also required.

• The financial transactions are difficult to
  maintain because sometimes thousands of
  transactions need to be recorded in a single day.

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In short
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Best Accounting Method
The best accounting method for your business
depends upon the size of the company. Cash
accounting method is the best for businesses that
manage everything in cash, as it is a simple as
you dont have many transactions to maintain.
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Unless you never sell without immediate payment,
accrual basis is better. Large businesses always
use the accrual accounting method because they
need to record thousands of invoices. To get a
clear picture of the business finances accrual
method is necessary.
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If your business finds it hard to maintain
accrual or cash accounting records, now is the
time to alleviate your burden by outsourcing your
accounting needs to Cogneesol Inc.
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Contact Us
ADDRESS
30 Wall Street, 8th Floor, New York, NY 10005-2205
PHONE
646 688 2821
EMAIL
info_at_cogneesol.com
WEBSITE
www.cogneesol.com