You will select the Cash Method of Accounting if you are declaring all Income actually or constructively received during the year (in cash, property, or services). Income is constructively received when it is credited to your account or set aside for you to use. By the Cash Method of Accounting expenses are for amounts actually paid during the year. However, if the payment of an expenditure creates an asset having a useful life that extends substantially beyond the close of the year, it will not be expenses but Depreciated. Click here for more on; Depreciation
You will select an Accrual Method of Accounting if you will have declared income when you earn it or expenses when you incur them not necessarily when you receive them.
The most common method of Accounting for a Small Business is the Cash Method. This just means that your income is money that your received and expenses are money that is already spent. It is that simple.
