Accounting Methods for Small Business: Choice of Accounting Method

This report provides a comprehensive overview of accounting methods for small businesses, comparing and contrasting cash and accrual accounting. It discusses the factors that influence the choice of accounting method, including the size of the business, its financial goals, and the needs of its stakeholders. The report also covers the differences between cash and accrual accounting, and the impact of each method on financial reporting. The report highlights the significance of accounting methods and their impact on the financial health of a business, and emphasizes the importance of choosing the right method to accurately reflect the financial performance of a business. Additionally, the report explores the implications of changing accounting methods and the considerations involved in making such a decision. The report draws on research and provides insights that can help small business owners make informed decisions about their accounting practices.

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Decisions of Accounting Methods for Small Business Owners
The following write up outlines the important points that a small business owner must consider
and decide on when adopting an accounting method for record keeping. The write up also
answers the question whether a taxpayer can change from one method of accounting to another.
The cash basis method required the business to record transaction when cash inflow is received
or cash outflow is made while accrual method requires transaction to be recorded when it
happens regardless of when the cash will be received (Weil, Schipper, and Francis, 2013).
A small business owner has to decide on the following issues when deciding on the accounting
method; first, the owner must consider the users of the business financial information. If all users
of the financial informal are internal users, the owner can choose cash basis accounting while if
financial information users are external users, the owner has to use accrual accounting method.
Secondly, the small business owner should consider the tax reporting purposes. The accrual
method is compulsory when business has large inventory and makes sales of above $5 million
per year (Libby, Rennekamp, and Seybert, 2015). The cash basis is commendable when the
business does not meet company requires. Thirdly, a small business owner should consider the
vision of the business. If the business has a vision to increase its inventory, sales, and other
operations, the business owner should adopt accrual basis of account and if the business is
contented by its current performance, the owner can continue with cash basis of accounting
(Zinkeviciene, and Vaisnoraite, 2014).
The business owner can change from one method of accounting to another. A taxpayer can
consider the vision of the business, number of transactions and users of the financial information
when changing from one method of accounting to another.

References
Libby, R., Rennekamp, K.M. and Seybert, N., 2015. Regulation and the interdependent roles of
managers, auditors, and directors in earnings management and accounting choice. Accounting,
Organizations and Society, 47, pp.25-42
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
Zinkeviciene, D. and Vaisnoraite, G., 2014. Factors affecting the choice of tangible fixed asset
accounting methods: theoretical approach. European Scientific Journal, ESJ, 10(10).