Cash Basis VS Accrual Basis (What is better for Tax optimization?)

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Do you know about Cash vs Accrual Basis in accounting? This is something that could actually help you optimize your taxes, but what is the difference?

The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized. The cash method is a more immediate recognition of revenue and expenses, while the accrual method focuses on anticipated revenue and expenses.

In other words, the cash basis of accounting recognizes the expenses incurred and revenues earned immediately when money changes hands between two parties involved in the transaction. Whereas, the accrual basis of accounting recognizes expenses when they are billed (not paid) and revenues when they are earned.

While the accrual basis of accounting provides a better long-term view of your finances, the cash method gives you a better picture of the funds in your bank account. This is because the accrual method accounts for money that's yet to come in.

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