READY TO
MAKE THE
Saying the Tax Cuts and Jobs Act (TCJA) has resulted in
a number of changes is, perhaps, the understatement
of the century. So, as you can imagine, pretty much all of
us are still trying to get a handle on what these changes
actually mean to our clients’ bottom lines. What we do
know, however, is that there are some truly great provisions
wrapped up in the overall reform package for business
owners. For example, the accrual accounting to cash
accounting provision presents a really exciting opportunity
SWITCH
TCJA Creates Opportunity
For Business Owners
To Switch From Accrual
To Cash Accounting
for many of the businesses we work with every day.
T HE BASI CS
Timing is everything when considering the difference be-
tween cash basis and accrual basis of accounting. In a nut-
shell, cash basis means that you record your revenue when
cash is received and report your expenses when cash is
paid. Accrual basis means that you report revenue or ex-
penses when the sale is made or the invoice is received, in
the case of supplies from vendors. Consider the following
simplistic examples for recognizing your company’s rev-
enue and expenses using the different accounting methods.
REVENUE – Say your company sold $5,000 of widgets to
a customer in December (the same month the product was
delivered along with the invoice), but the customer actually
paid their bill in January. If your company used cash basis
accounting, the sale would actually be recognized in Janu-
ary, when their payment was received. Using accrual basis,
the sale would have to be recognized in December when
the widgets were sold and delivered to the customer. Thus
the cash method defers revenue to a future tax year.
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