Accounting Method

An accounting method is a system of rules and procedures used to record and report financial transactions. The specific method used will depend on the type of business and the needs of the owner. There are two main types of accounting methods: cash-basis and accrual-basis.

**Cash-basis accounting** records transactions when cash is received or paid. This is the simplest method to use, but it can be inaccurate if there are long delays between when a sale is made and when the cash is collected.

**Accrual-basis accounting** records transactions when they occur, regardless of when cash is received or paid. This is a more accurate method, but it can be more complex to use.

In addition to the two main types of accounting methods, there are also a number of specialized methods that can be used for specific industries or businesses. For example, the construction industry often uses the percentage-of-completion method, which records revenue and expenses as a project progresses.

The choice of accounting method can have a significant impact on a company's financial statements. For example, a company that uses the cash-basis method will report less profit than a company that uses the accrual-basis method. This is because the cash-basis method does not record revenue until it is actually received, while the accrual-basis method records revenue when it is earned.

The accounting method used by a company should be appropriate for its size, industry, and needs. A company's accountant can help it choose the best method for its circumstances.

**Accounting methods and taxes**

The accounting method used by a company can also have a significant impact on its taxes. For example, a company that uses the cash-basis method may be able to defer taxes on its profits until it actually receives the cash. However, a company that uses the accrual-basis method may have to pay taxes on its profits even if it has not yet received the cash.

The choice of accounting method can be a complex decision. A company's accountant can help it choose the best method for its circumstances.