My physics teacher in high school always said, “Use the K.I.S.S. method, Keep It Simple, Stupid”.
Cash Vs Accrual Accounting is a topic that I will continue to
discuss because there is no quick and simple answer. Accrual accounting
may be G.A.A.P. (Generally Accepted Accounting Principle) but it is not
always best for cash management for a small business. For small
businesses especially for a services like web design or a law firm, you
really can not recognize income until you get the cash. Some of my
clients have clients that have yet to pay them for services so they
cannot recognize a sale. A retail client who has cash sales is most
definitely on a cash basis. There is no accounts receivable. For
accounts payable, that is pretty synonymous with the Unpaid Bills
Report in Quickbooks, but only if a business enters bills as they come
in and does a weekly or periodic check run. Otherwise, you pay bills as
they come in, and that is good practice so that you don’t miss payment
deadlines. What I have found to be a problem with Quickbooks is that
you have to commit to one method or another, or when you switch,
transactions can sit in a queue waiting to be cleared.
The bottom line is that small business accounting is a mix of cash
vs accrual accounting. Apply the right method to manage your cash
conservatively while keeping your taxable income minimized is a
challenge but it can be done. Refer to your CPA if you get stuck.