Accrual VS. Cash Method of Accounting for Digital (non-physical) Product sales through an Online Marketplace.

[aaron5596]

Hello,

I sell Digital Products through a couple Online Marketplaces, I am curious if it is necessary that I file using the "Accrual" Method under this circumstance or if I can file it as "Cash", only accounted for when I am actually paid? I will most likely be receiving a 1099-Misc for one of these Marketplaces, if that changes anything.

Thank you!

[Bsch4477]

The choice of the accounting method you use is up to you. Most small businesses use the cash method. 

[DanielV01]

If you are maintaining any significant inventory, you may wish the "hybrid" method instead (Appears as "Other" in the Accounting Methods, and then you type in Hybrid).  Accrual method is generally required for inventory, so this method allows you to use Cash method for Sales (when you actually receive the money), but accrual for your inventory (cost expensed when you order and move the product)

[Critter-3]

Depends on the nature of your inventory ... if you don't hold a physical inventory  or you qualify to expense the inventory costs  then cash would be correct.  Otherwise hybrid is correct.     https://www.irs.gov/pub/irs-pdf/p538.pdf