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Discussion Starter · #1 ·
Which one of the two is preferable for an electrical contractor. Also, I'm setup as an accrual basis corp but, when I do my year end on Quickbooks I need to change my company preference to cash basis for the numbers to jive correctly. Do any of you guys have this problem?
 

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Discussion Starter · #6 ·
rewire said:
accountants will push you towards cash basis because it is easier for them. Most construction based companies use cash basis as payments can be months apart and they are not as concerned about when monies show up on the books.
That's my point exactly. Just, can't see any advantageous point of accrual basis for tax implications at this level. Cash basis is so much easier to track it's simple arithmetic, money in and money out.
 

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Just remember, if you are on a cash basis, if you ever wind the business down, you could have a bunch of revenue coming in with no costs (which makes the tax burden a little higher). See, those tax breaks you got for paying for materials w/out the billings turn around at the end.
 

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Cash so you can manipulate your income; ie, pay suppliers & other bills in December rather than January when you need to.
With the accrual method, you get credit for the expense when the bill comes in (let's say December) even if you don't pay it until February.
 

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With the accrual method, you get credit for the expense when the bill comes in (let's say December) even if you don't pay it until February.
You are correct hardworkingstiff, my mistake. 1 thing you can do with cash basis is delay some of your income by getting some folks that would pay in late december to maybe just mail it in late december so that you don't receive it until January. And there are a few expenses that could be prepaid in December.

We use cash basis for tax reporting but also run accrual based reports to get an accurate picture.
 

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Tax man says,

You can generally use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. However, the following restrictions apply.

  • If an inventory is necessary to account for your income, you must generally use an accrual method for purchases and sales. (See, however, Inventories, later.) You can use the cash method for all other items of income and expenses.
  • If you use the cash method for figuring your income, you must use the cash method for reporting your expenses.
  • If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income.
  • If you use a combination method that includes the cash method, treat that combination method as the cash method.
 
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