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Accounting techniques are the different ways in which a business will organize their financial records in preparation for financial reports. There are two main methods to choose from, which are called the accrual basis and the cash basis. The method chosen will depend on a number of factors, including IRS (Internal Revenue Service) tax requirements, sales volume and if the business gives credit to customers.

In order to stay compliant with the IRS and the law, you do have to keep records; additionally, these records will help managers figure out where the finances of their company are, and what they can do to make them better. You can alter your accounting methods at a later date if you wish, but it takes some time to do. It helps to pick the best one to use right away, depending on your needs.

The cash basis recognizes expenses and income as a real time cash flow. Income is not based on when it is earned but rather on receipt of funds, while expenses are not recorded when they are incurred, but rather when they are paid. This technique allows for flexibility when it comes to taxable income, you can delay bills so you do not get the money until after the current tax year, or you can pay bills the moment they are received or before they are due in order to accelerate your expenses.

The cash basis has its benefits. It is easier to understand and carry out than the accrual technique, cash flow is depicted accurately and you can delay taxation of income until you actually have it. Expenses and your revenue depends upon on when you receive and pay out money, although this can be a benefit it can also be a disadvantage because it can give an inaccurate image of the financial situation for a business. This is where the accrual basis comes into play, it differs from the cash basis because it recognizes expenses and income when they apply and not just when the cash has changed hands, leading to a more accurate depiction of a businesses financial situation in any given period.

With the accrual system, when you earn the revenue you record it, and when you spend money you record it. It does not matter when the money actually leaves your hands, just when you made the intention of spending or taking it in. While accrual methods give you a better idea of how your company acted in the financial year, and it gives you an idea of the bigger picture, it is a lot harder to figure out than cash methods, and you would have to pay income taxes on revenue before you even get it.

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