Can the Same Basis of Accounting Be Used for Both Tax and Financial Reporting?
Generally, small to medium-sized businesses can use the same basis of accounting for the general ledger and for tax and financial reporting, particularly if the basic financial statements are supplemented with schedules that provide information on significant accrual basis items (such as accounts receivable). If the same basis of accounting is used, few, if any, adjustments will be necessary to prepare financial statements and tax returns from general ledger information. The following paragraphs discuss bases of accounting that are commonly used and considerations for selecting each. Accrual Basis of Accounting The method of accounting in which assets, liabilities, revenues, and expenses are recorded in the same period that the related transactions occur, regardless of whether cash was received or paid by the entity during the period, is referred to as the accrual (or GAAP) basis of accounting. The accrual basis of accounting is based on cash transactions as well as credit transactions
