Tip - Cash-basis Returns vs Accrual-basis Books - Linda Keith CPA

Thomas's question: Our bank used CPA-prepared financials on the accrual basis last year to calculate cashflow available to service debt and qualify the borrower. We have been acquired and the 'new' bank uses tax return analysis for cashflow instead. On the borrower's 1120S, Schedule B indicates cash basis. Does that mean that the 1120S M-1, net income per books is based on the cash basis? If so, why would the taxable income still be different than net income per books? Linda says: Thomas, the Schedule L Balance Sheets on any of the business returns (1120, 1120S, 1065) should be based on the client's books and records. Even if the tax return is on the cash basis, the balance sheets can be on the accrual basis, or the cash basis, whichever is used by the business in their internal records.