How to Reconcile Accrual Income to the Tax Return

The accrual basis of accounting is commonly used by businesses to record their daily activities. Using the accrual basis allows the business to record accounts receivable, ...

The accrual basis of accounting is used to record revenues and expenses in the period in which the...

The two basic methods of accounting available to businesses are the accrual basis and the cash basis. The accrual basis of accounting records income when it is both earned and realized or realizable. To be earned, goods or services must have been provided. The realized or realizable concept deals with the collection, or foreseeable collection, of...

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.