Mike Hodkin <mhodkin[at]comcast.net> wrote:

- quote -

For federal income tax purposes, the IRS has various rules
under which cash basis reporting is specifically allowed.
(Don't ask me to recite same, as I don't keep this stuff on
the tip of my tongue.) So, if you conform to those rules,
there should be no problem as far as the IRS is concerned.

However, in my state (WA) you would likely get a much
different response from the state sales and gross receipts
tax department. They tend to "prefer" accrual reporting and
will only "tolerate" cash basis in instances where the
business operation is straight forward and detailed records
DON'T exist. Were they to discover accrual basis records (or
simply a well organized accounts receivable system), I would
fully expect them to require their use for state tax
reporting purposes.

MTW

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"Wayne Brasch" <waynebrasch[at]stowetel.com> wrote:
- quote -

Well not ANY service company. I believe over $10 million in
receipts still requires the accrual method.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.

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"Mike Hodkin" <mhodkin[at]comcast.net> wrote:

- quote -

It is possible. The likelyhood is something that would need
to be addressed using the facts and circumstances of your
particular case. One exception available is if your gross
receipts are under a certain dollar amount ($1M, I THINK)
then you can use the cash basis pretty much no matter what.
There are also other provisions that might apply.

It would behoove you to pay for a bit of research based on
your particulars.

Gene E. Utterback, EA

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"Mike Hodkin" <mhodkin[at]comcast.net> wrote:

- quote -

Any company, practice, or firm providing services may use
the cash basis of accounting for tax purposes. For the
purposes of preparing financial statements to, for example,
borrow money from a bank, generally accepted accounting
principles says that you must use the accrual basis. You are
doing nothing wrong and should not be concerned.

Wayne Brasch, CPA, M. S. Taxation

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A personal service business (medical practice) has been
using cash-based accounting for both internal tracking as
well as for paying taxes, but then decides to switch to
accrual-based accounting for internal tracking only (and
continue to pay taxes on cash-based system). Is there a
legitimate fear that the IRS could discover the
accrual-based books and then demand that the business switch
to accrual reporting for taxes purposes? That is, can a
company safely keep two sets of books, one for paying taxes
and one for internal tracking. Of course, both are
completely truthful, just a different way of matching
expenses and income.

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