Simple methods are used here when you are talking about cash methods. You can see how the cash method is simple too as it determines the actual flow of cash in and out of a business firm. When you receive an amount the income is recorded then and when you pay off the expenses they are actually reported.
Proprietors without any inventory use cash method in their business processes.
If you look from the tax point of view, you can notice how it is of great advantage for a new business to use cash method since here the income of recording can be put to next tax year and the expenses are shown at once.
Have you applied the accrual method? Well you may know then that in this method the expenses; the incomes are recorded accordingly without keeping in mind that whether the cash has changed hands from one individual to other. If you have experienced the process of sale on credit you might know how the sale is recorded in the books not when the cash is collected but when the invoice is given.
Similar case happens for the expenses because as the expenses are generated, the materials are ordered or when a working day that has been written by an employee and not when the check is actually penned down.
Now it is for you to decide whether you want accrual method or cash method? What is advantageous for your business and its well being? One should always keep in mind when these methods are used. The accrual method can only be applied if the annual sales increase $5million and if the venture is maintained as an organisation or corporation. For business that sells on credit, this method of accounting can be used. The income and the expenses given in a specific time limit match it.
You can use the cash method as well. It is appropriate for a small, money-based business or a company that is small. Do you have a skilled and professional accountant? Before taking any decision, you must always consult your accountant because he will best know the nooks and corners of business and will be able to give proper suggestion on what method will be fruitful for profit making of the organisation.
A good decision taken will always conclude the fate of a business firm since a business firm is based on profit and loss. A good profit means best for your business!!
