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An Understanding of Cash Basis Accounting and How It Can Be Applied

The tax accounting procedure is the method of paying taxes to the taxing authorities on the taxable income that the business or the individual is earning. There are generally two types of methods in which the entity can pay taxes to the authorities. These methods are the cash basis accounting method as well as the accrual basis accounting method. All the methods are generally based on the applied financial accounting. Almost all the tax payers start with the cash basis method. The method that the entity chooses is based on the goals as well as the business plans of the company. It is really important that the company or the individual is completely focused on the aims as well as aspirations that it has set for itself before adopting the taxation method. For instance if the owner of the business is just adopting a method to comply with the legal requirements of the federal tax authorities then the best method to be chosen is the cash basis accounting method.

The cash basis of accounting is done purely on the basis of the cash received as well as the payments actually made. The assets are actually counted when the payment is received and not when it is due. Also the liabilities are counted when the payment is made. This type of accounting is called the pure commerce accounting that is done at the large scale and the rules are specific for the each country. The cash basis of accounting is more common in the case of the small businesses and is counted when the cash is actually received and the payments actually made.

This method of accounting can be changed to the other methods of accounting by the consent of the secretary of the treasury. There are several ways in which the cash basis of accounting can be changed to the other methods of tax payment. One way is that the alternate payment method is adopted for two years and the concerned authorities would keep charging for the alternate method till it is approved. Another way to change the method of tax payment is to get the written letter approved by the secretary of the treasury.