Radical Accounting: A Way Out Of The Dark And Into The Profit
For cash accounting your income consists of what you actually received during the tax period, and your expenses consist of what you actually paid out. If you use the accrual basis your income is made up of all the invoices your business issued during the year, even if you have not received payment. You also deduct your bills even if you have not paid them yet. So if bills exceed invoices, or if you have an agreement with your vendors whereby they're financing you with trade credit, consider using the accrual basis. If your business stocks inventory then the IRS requires the accrual basis. Corporations tend to use the accrual basis.