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JimMeade
Veteran Advisor

Cash Or Accrual Accounting?

Do you have a strong opinion about whether cash or accrual accounting is best for  you? 

Is one more accurate about what taxes you should owe and when you owe them?

Do you make management decisions every winter based on tax mitigation?

 

In my case, I'm on cash and won't change now.  If I were to start as a youngster, maybe I'd go with accrual as it seems to more accurately reflect the business.

Every November I sit down with the CPA and make tax-based management decisions.  One has to be careful to look ahead, cause one CPA had me paying no tax until I got hit with a big bill.  That was years ago and I pay a lot more attention to both the long and short term tax situation now.

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4 Replies
k-289
Senior Advisor

Re: Cash Or Accrual Accounting?

Cash  keeps me  realistic,  although I'm in a different world than my city living CPA, ---

 

November tax  '' con sulting '' we have very different opinions on topic at the end of the session---   

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ryanwilsoncwlv
Contributor

Re: Cash Or Accrual Accounting?

I use accrual accounting because it creates additional value through more informed decisions, including: in asset management; in liability management. I generally began to use different programs very often such as https://www.calxa.com/cash-flow-scenarios-to-mitigate-a-crisis in order to quickly calculate all the necessary numbers for accounting. It is very simple and convenient for me to use, so I advise you to try it if you have all the calculations manually take a lot of time.

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sw363535
Honored Advisor

Re: Cash Or Accrual Accounting?

Ryan Wilson, 

You must not deal with the IRS-USA  or not be in agriculture.

 

Cash has tremendous advantages for Farming.

There are places for accrual but not in the US agriculture production format

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WCMO
Senior Advisor

Re: Cash Or Accrual Accounting?

Yep, clear advantages to using cash basis for tax purposes on most farms.  I use what I call a modified cash basis for management purposes -- cash basis, adjusted mostly just for changes in inventory, depreciation, prepaids, receivables and payables as of year end.  It's still cash-basis accounting, just with year end adjustments to more accurately compare year-to-year overall financial trend changes.  Learned how to do this many years ago while working with the old PCA, to reconcile tax info to balance sheet changes.  Still a useful and applicable skill, though it confuses the current overpaid banker.  Actually, bankers should encourage this -- it recognizes some things financially that one might miss if looking strictly at cash-basis records, or cash-basis tax returns, to make decisions.

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