Which Method of Accounting You Need for Your Business
Accounting is quite a broad term that deals with tax, finance and business accounting, however in any kind of accounting the basic work an account do is recording, communicating financial information, preparing data sheet and making lots of mathematical calculation. When we learn about Tax accounting method it is quite specific to the methods of tax accounting which we follow to do it. There are two methods of tax accounting followed at different level of organization, the accrual method and the cash method.
Depending on requirement, these methods can be chosen according to timing of transaction such as debits and credits. Under the accrual method, you record business income when a sale occurs, whether it is the delivery of a product or the rendering of a service on your part, regardless of when you get paid. You record an expense when you receive goods or services, even though you may not pay for them until later.
Tax accounting helps to keep track of your record and makes business run in an order according to rules and law of the place. Tax accounting follows two rules under which we have accrual method of accounting, under this, accountant record business income of the sales which has been done. It could be record of delivery product.
To be more specific, under this method you recognize an item of income when all the events complete. If you estimate an amount due to you with reasonable accuracy and record it as income, and the amount you eventually receive differs from your estimate, you should make an adjustment to your income in the year you actually receive the payment.
There is another method of accounting which is called as cash accounting it is done only on received cash and on payment made. This type of accounting is called pure commerce accounting which is done at large scale and the rules are specific for different country. The cash method of accounting is more common in small business and it is counted only if cash is actually received, and expenses counted only if they are paid. That means this type of tax accounting method can not be taken up higher level and if a company is following this method it will be understand that tax is not relied on complete accounting data of the company.