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Entity types that generally use cash or accrual method of accounting for tax purposes are Sole corporation, Sole proprietorship, Partnership.
The cash basis of accounting records revenues and expenses when cash is received and paid. This method does not account for receivables or payables. Because it is simple to maintain, the cash basis of accounting is preferred by many small businesses. There is no need to track receivables or payables, and it is simple to determine when a transaction has occurred (the money is in or out of the bank).
Accrual accounting is a type of accounting in which revenues and expenses are recorded when they are earned rather than when they are received or paid. For example, rather than when you are paid, you would record revenue when a project is completed. This method is more widely employed than the cash method. The accrual basis, on the other hand, provides a more realistic picture of income and expenses over time, providing a long-term picture of the business that cash accounting cannot.
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