Which Method is Most Advantageous for Small Business?
Many tax preparers fail to communicate to their small business owner clients about the types of accounting methods allowed by the Internal Revenue Service (IRS) and the advantages and disadvantages of each. The average small business owner simply trusts that the tax preparer is utilizing the method most advantageous to them. This paper explores cash basis, accrual, and hybrid accounting methods approved for tax purposes by the IRS. By comparing and contrasting the advantages and disadvantages of all of the methods, this paper will attempt to will seek to identify the method most advantageous to the small business …show more content…
Perhaps the largest disadvantage to using the cash based method is that the purchase of inventory for the business is recorded immediately which may be long before a sale is made with the inventory to produce income. This, then, makes it very difficult for the business to determine if the sale was a profit or a loss.
The second method of accounting that is being analyzed is the accrual method of