Mergers & Acquisitions

Resources: Glossary

Don’t be confused or intimidated by any terms or abbreviations in the M&A world. You’ll find answers here.

Accounting Method

Definition

The method that is used to record a business’s revenue and expenses for tax purposes.

See Also

Cash basis , accrual basis.

Tips

Most businesses use a hybrid of the two methods: cash and accrual. Cash accounting reports income and expenses in the year they are received and paid; accrual accounting reports income and expenses in the year they are earned and incurred. The IRS requires taxpayers and those selling a business to choose an accounting method that accurately reflects their income and to be consistent in their choice of accounting method from year to year. In some accounting software, such as Quickbooks, you can change the format from cash to accrual with the click of a button; however, IRS approval is required to change methods for tax purposes. Note that some businesses prepare their financial statements on an accrual basis and their tax returns on a cash basis. The difference between the two is also outlined in what is called a “reconciliation,” which can be provided by our accountant .

Related Resources

Preparing Financial Statements When Selling a Business