As a business owner, you’re bound to receive a lot of financial tips to guide your accounting. One tip you should heed is to pick a method of accounting and stick with it. Though everyone has their own unique way of keeping the books, most accounting methods fall into one of two broader categories: cash and accrual.
The cash method involves counting your income as you receive it and deducting expenses as they go out. For instance, you may know you have a check coming on the 15th and another one going out on the 20th. However, you don’t take the income and loss into consideration until the money is in your account.
With the accrual accounting method, you may enter all fixed income and expenses at one time. For instance, on the first of the month, you may record all transactions that are made, even if you don’t have the money in your hands. You may do this if you provide paid memberships, for instance, or own rental properties. Choose one method, but don’t do both. If you do both, your books can quickly become a mess, and much more difficult to sort out come tax time.
