Website design By BotEap.comYou or your business sell a product or service to a customer and allow them to pay later. Very generous of you or your company, but you are actually preparing a way for your business to generate cash. This money is called accounts receivable. All this is configured through an invoice that must be delivered to the client through a monthly billing process. This invoice will include the description of the product or service that you have provided to the customer. It also lets the customer know how much they owe, including taxes and shipping, and when the payment is due. I’m sure I haven’t told you anything new; You can get this information in an Accounting 101 class.

Website design By BotEap.comHowever, there are two different types of accounting methods that can muddy the waters a bit. These two methods: cash accounting and accrual accounting indicate how a company’s public records are recorded in its financial books, and this can sometimes lead to financial scandals. It all has to do with how the money enters and leaves the company. Manipulating accounting methods is a game that many companies play.

Website design By BotEap.comFirst, let’s take a look at the cash accounting method. If a business uses the cash method of accounting, it records its financial accounts when it actually gets the cash and deposits it in the bank. So let’s say a customer bought a car on December 28, 2014 but doesn’t make a payment until an invoice comes in on January 15, 2015, then the auto company would wait to record their cash earnings until they have the cash in their can. . This cash can be in the form of checks, credit card receipts, or another form of income. Many smaller companies use this method because it is easier to use without hiring a ton of accountants. You can see how even though the car was purchased in 2014, it will not appear on the tax report until 2015. This could save the car buyer a lot of money in taxes for 2014. Sometimes companies ask their customers not to pay. until early next year. This reduces your net worth and your tax payments for that year.

Website design By BotEap.comA business may want to use a method other than cash accounting. Why would a business want to use a method other than cash accounting? What do you think?

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