Good morning,
I have already read the definition of those terms, which is the reason that I asked that question.
Cash method
This is the simplest and most common for small businesses that don't carry an inventory. (I do)
With this method:
- You deduct your expenses in the tax year that you actually pay them (you don't carry them over to the next tax year) (Yes. Incurred expenses and paid, however the expenses were for inventory).
**************However*************
Accrual method
This method is usually used by small businesses that either carry inventory or offer credit. (I carry inventory)
Note: If you have inventory, you're required to use this method for purchases and sales of goods. However, if your average annual gross receipts for the last three years are $29 million or less, you can use the cash method. You don't have to calculate the cost of goods sold.
With this method:
- You report income in the tax year that you earned it. This is true even if you aren't paid until the following year
- You deduct your expenses when you incur them (Expenses incurred)
So, am required to accrual due to inventory or do I continue my filing as cash due to my gross receipts equaling less than $29 million. If I continue my filing with cash method, will I be able to deduct my expenses since it is all from cost of inventory?
