Accounting Methods for Small Business Owners †Free Samples

Question: Discuss about the Accounting Methods for Small Business Owners. Answer: The following write up outlines the important points that a small business owner must consider and decide on when adopting an accounting method for record keeping. The write up also answers the question whether a taxpayer can change from one method of accounting to another. The cash basis method required the business to record transaction when cash inflow is received or cash outflow is made while accrual method requires transaction to be recorded when it happens regardless of when the cash will be received (Weil, Schipper, and Francis, 2013). A small business owner has to decide on the following issues when deciding on the accounting method; first, the owner must consider the users of the business financial information. If all users of the financial informal are internal users, the owner can choose cash basis accounting while if financial information users are external users, the owner has to use accrual accounting method. Secondly, the small business owner should consider the tax reporting purposes. The accrual method is compulsory when business has large inventory and makes sales of above $5 million per year (Libby, Rennekamp, and Seybert, 2015). The cash basis is commendable when the business does not meet company requires. Thirdly, a small business owner should consider the vision of the business. If the business has a vision to increase its inventory, sales, and other operations, the business owner should adopt accrual basis of account and if the business is contented by its current performance, the owner can continu e with cash basis of accounting (Zinkeviciene, and Vaisnoraite, 2014). The business owner can change from one method of accounting to another. A taxpayer can consider the vision of the business, number of transactions and users of the financial information when changing from one method of accounting to another. References Libby, R., Rennekamp, K.M. and Seybert, N., 2015. Regulation and the interdependent roles of managers, auditors, and directors in earnings management and accounting choice. Accounting, Organizations and Society, 47, pp.25-42 Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning. Zinkeviciene, D. and Vaisnoraite, G., 2014. Factors affecting the choice of tangible fixed asset accounting methods: theoretical approach. European Scientific Journal, ESJ, 10(10).