Why do you think tax accounting is close to cash basis accounting?

Expert Solution

Under cash basis accounting the income is booked when it is actually received. IRS permits to compute the tax bill using one of two tax accounting methods- cash method and accrual method. Among these two the more common for individual taxpayers is the cash method. Tax liability arises in the year when income is received thus you are liable to pay tax only when income is in the hands. The cash basis accounting ensures that taxes are not paid on monies which are not yet received, thus improves cash flow and ensures that sufficient funds are available for the expenditures on tax. For individuals and small businesses that do a huge deal of cash business and are not maintaining large inventories, cash accounting is a reliable and convenient approach for tracking expenses and profits without necessitating a great deal of bookkeeping. Thus, in my opinion the tax accounting is close to cash basis accounting

ekkarill92 answered 2 years ago

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