Question

what options do s corporations have for choosing an accounting method? what expectations are there to the options? are these the same as for the C corporation?

Answer 1

S corporation is required to maintain meticulous and accurate record pertaining to capital investment, expenses and income. The total expenses and income is being reported by S corporation at the company level and go by share pertaining to net loss or profit to individual stakeholders. Excellent record is required to be maintained by the S corporation with respect to investment of property or cash of each shareholder. These records stand essential for creating the percentage of ownership held by the shareholder underlying the company.

There are two type of accounting method that are taken into consideration by S corporation viz. Accrual method and cash method. Under accrual accounting the expenses and revenue for the entire year is being recorded as and when they are incurred. For instance if a machine is purchased on credit, the buyer is required to make payment of money only in the next year. However the purchase is required to be recorded in the same year in which the machine has been acquired.

Under cash accounting method, the expenses and revenues are recorded in the same year in which they are actually incurred or paid. For instance if the machine is purchased on credit and the payment is required to be made in the next year, then unlike accrual method of accounting the expenses will be incurred in the next year when the payment is made in lieu of the machine.

Generally the accounting followed by S corporation is similar to the accounting followed by C Corporation. The expenses and income are accounted at the corporate level and the nature pertaining to different type of expenses and income are also ascertain at corporate level also.