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. You have likely heard of them…. cash accounting and accrual accounting. It is important to understand the difference between the two before deciding what is best for your agribusiness.
A simple breakdown looks like this: 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. Think of this as a more big picture approach. 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. A bit more time consuming if you will. 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. They will be able to shed some light on the benefits of both methods as they pertain to your business and your financial goals.
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