Also, owners of certain types of businesses can use special accounting methods under the tax law. These include farmers, builders and contractors, and business owners receiving income under long-term contracts. If you're in one of these industries, your accountant can give you more information. The major difference between cash and accrual is that a cash-method taxpayer recognizes income and expenses at the point in time that the money is actually received or paid. In contrast, an accrual-method taxpayer generally reports income at the time the sale is made even if the customer does not pay at that time, and reports expenses as they become due rather than by the date that the checks go out.
Most taxpayers use the cash method of accounting for their personal life.
It's very simple to use and requires little recordkeeping other than a checkbook register, bank statements and perhaps credit card statements. You can continue to use the cash method for personal items even if you use the accrual method for your business. And if you have more than one business, you can use different methods for each business, as long as you maintain a separate set of accounting books and records for each one. If you are a sole proprietor using the cash method, you may be eligible to use Schedule C-EZ to report your business income and expenses. All Rights Reserved.