Accounting Methods

An accounting method is a set of rules used to determine when and how income and expense are reported.  You accounting method includes not only the overall method of accounting you use, but also the accounting treatment you use for any material item.

Kinds of methods

Generally, you can use any of the following accounting methods.

·       Cash method

·       An accrual method

·       Special methods of accounting for certain items of income and expenses.

·       Combination method using elements of two or more of the above

Business and personal items

You can account for business and personal items under different accounting methods.  For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items.

Two or more businesses

If you have two or more separate and distinct businesses, you can use a different accounting method of each if the method clearly reflects the income of each business.  They are separate and distinct only if you maintain complete and separable books and records for each business.