

Ask HN: When should a startup should use cash vs. accrual-basis accounting?  - scrollinondubs

Startups live and die by cashflow. It seems like 99% would therefore want to use cash basis accounting (it's dangerous to plan by revenue of receivables that may never come). When then is it appropriate for a startup to elect to use accrual-basis accounting?
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cperciva
You should always do both forms of accounting.

Cash accounting tells you if you're going to be in business tomorrow. Accrual
accounting tells you if you're going to be in business next year. Not doing
cash accounting will cause problems sooner; but either of them will cause
problems eventually if ignored.

~~~
scrollinondubs
But it's a binary choice for a company to select one method of accounting or
the other. I know you can get both views from within QB but for tax filing
purposes you're either cash or accrual.

If we've elected to use accrual-basis accounting then when we sign the
contract for a deal we book that revenue immediately (whereas if we're cash
basis it's not on the books until it's in our bank acct). But by using a P&L
report that shows us as having made all that money which can be dangerous if
you're using those numbers to plan.

I'm just wondering what the conditions are under which it's desirable for a
startup to elect to use accrual-basis accounting for their books? You can get
the cash-basis view in QB while being an accrual-basis company but what's the
advantage of introducing that complexity?

~~~
cperciva
_for tax filing purposes you're either cash or accrual._

Being in Canada, I never had that choice -- Canadian income taxes require the
use of accrual accounting. But I'd use accrual accounting even if I had the
option of cash accounting: Tarsnap users pre-pay, so I've got lots of cash
which doesn't count as "income" yet under accrual accounting.

