By Brian Ravencraft
When it comes to keeping track of the revenue coming into your agribusiness, and the expenses you take on during day-to-day operations, you essentially have two different types of accounting methods to choose from. Cash accounting and accrual accounting. It is important to understand the difference between the two before deciding what is best for your agribusiness.
Cash accounting looks at the revenue and expenses as they come in and as they are paid out. Think of this as a wheel that is constantly turning as money flows into your operation. Not considered while using this method is money that is expected to come in. Here we are talking about all real cash, all the time. Those who enjoy a real time look of the cash coming in and out of their business should select this method.
Accrual accounting brings accounts payables and receivables into the fold, monitoring the money brought into the agribusiness and the funds and services the operation owes to outside vendors and companies. Those who want a feel for where their business stands financially over all should select this method.
Cash accounting is simpler in nature. Accrual is more involved. Accrual accounting is executed while tracking revenue and expenses, which can ebb and flow a good deal from day to day. You or your accountant will need the assistance of technology such as a sophisticated accounting software to help you track everything accurately.
When it comes to selecting between these two methods, make sure to consult your accountant to make sure you aren’t required to choose one route over the other in order to stay compliant. Some companies must use accrual accounting. If the choice is yours, still have a discussion with your accountant before deciding. As always, reach out to me with any questions you may have.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.agribusinessaccounting.com or www.HolbrookManter.com.