How to Switch from Cash to Accrual
Question: Can I just switch from cash to accrual basis in my company? There is a button to do that in QuickBooks.
Answer: Generally, you cannot switch your basis from cash to accrual or accrual to cash without a significant and legitimate business reason, and a government sanction, too.
That being said, QuickBooks does have a toggle button to switch reports from cash to accrual or vice versa. Primarily, this switch is used once when a business initially chooses its basis in QuickBooks.
But also, it allows you to view your business from two different perspectives, which can be helpful in your cash flow management. Viewing your Income statement from a cash basis shows your income actually received. The accrual view shows all the income invoiced.
Cash basis is reporting income and expenses based on the actual dates cash is received or paid.
Accrual basis is reporting income and expenses based on the dates invoices are received or created.
Most small businesses pay taxes on a cash basis, but at a certain income level, U.S. businesses must pay taxes on an accrual basis. Check with your tax preparer and/or look at your previous business tax returns to see which basis is used for your business.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.