Accounting Methods - Cash versus Accrual

By Adam Greene CPA

• As a partner in the accounting firm of Greene & Company LLP in Melville, NY, Adam Greene serves as a CPA to a number of construction companies. Adam Greene, CPA, has focused his professional attention on the construction industry for nearly 30 years.

In the construction industry today, many companies use either the cash method or the accrual method.

Cash Method• A great number use the cash method,

which requires a company to calculate funds at the time that they are paid or received.

• For example, if a company makes a $100 sale in February but receives payment in March, that income would be counted for March. This method gives a clearer picture to tax authorities of a company's total assets at any given time, but it does not necessarily reflect the profitability of the business in a particular quarter.

Accrual Method• The accrual method, by contrast, requires

the business to record income and expenses at the time of services rendered or products received.

• A company that made a $100 sale in February would under the accrual method enter that sale in February rather than at the time the payment came in.

• This method, required of C-corporations with more than $5 million in annual sales, lets authorities see a financial entity's per-month activities more accurately.