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Cash vs. Accrual

Discussion in 'Business Operations' started by kblandscape, Jan 24, 2012.

  1. kblandscape

    kblandscape LawnSite Member
    Messages: 12

    I currently use the Cash Basis for my accounting. But I am finding out as years go on I may have to switch to Accrual because some of my clients use Accrual method. So when i get the w-2 at the end of the year, the work I did for them in December shows December 2011 taxes, But I am marking it has income received in January because thats when I received the check. I almost want to use the Cash basis for my expenses and the Accrual Method for my income, but it confuses me in the long run, So I may have to just change everything to Accrual. What does everyone else do?
  2. xclusive

    xclusive LawnSite Bronze Member
    Messages: 1,054

    Originally I wanted to do a cash but when I spoke to my accountant she most companies do it on accrual. So I took her advice. It sucks because you have to pay taxes on money that has not been received yet.

    On another subject why do you get a w2 from your clients?
  3. kblandscape

    kblandscape LawnSite Member
    Messages: 12

    oops, my mind is still thinking w-2 from all the Tax preparations this month. I meant 1099.
  4. GreenI.A.

    GreenI.A. LawnSite Silver Member
    Messages: 2,131

    The way my CPa has me doing it is I enter the billing once it is received. If the job was completed in December 2011, and payment is not received until January 2012 then the payment will go into 2012 books. We actually write of any utstanding balances as of 12/31. We then add it in in January when payment is received.
  5. Kelly's Landscaping

    Kelly's Landscaping LawnSite Platinum Member
    Messages: 4,657

    We use cash and we are not going to switch No way I am Paying sales tax on money I haven't gotten yet or worse money I got stiffed on and will never see. Now for tracking our income and how we are doing we often run reports in accrual and compare them to previous years to see if were growing or not. In fact this year we collected more then we earned its just how the year worked out. Some years you get the fall done early enough to get it billed in time to collect it before Dec 31st. Last year was the opposite and now next year we have to work that much harder to tie this season. As far as 1099s the IRS isn't stupid they know if you work on cash basis your not going to owe taxes till you collect so there should be no red flag. Also I don't know about you but we do not break down which of our nearly 200 accounts pays what when we file. We have 2 that insist on giving us 1099s which changes nothing they are still clients their income was still reported if they wish to file extra paper work that's up to them incomes income.
  6. DA Quality Lawn & YS

    DA Quality Lawn & YS LawnSite Fanatic
    Messages: 9,228

    cash basis here much simpler.
  7. MarkintheGarden

    MarkintheGarden LawnSite Bronze Member
    Messages: 1,133

    The accrual basis is a good fit for companies that have large inventories of supply, material, product, etc.

    Cash basis in this business.
  8. xclusive

    xclusive LawnSite Bronze Member
    Messages: 1,054

    I just met with my accountant and I mixed things up. As said by Mark large companies use accrual not small ones. Sorry for the confusion.
  9. JContracting

    JContracting LawnSite Bronze Member
    Messages: 1,878

    Accrual is great if you're a retail/restaurant owner and the money is there instantly but if you're like most contractors, you may not see payments until 2 weeks down the road or (as Kelly) said it, you may not even see it. Cash basis here as well.
    Posted via Mobile Device
  10. kblandscape

    kblandscape LawnSite Member
    Messages: 12

    Thanks everyone, Cash it is. I figured out a way on my quickbooks to report income i have received in January that has been reported on a 1099 for december as income to be reported on 2011 taxes.

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