accrual method of accounting for
sales and purchases must be used.
Obviously, there is no ���right��� accounting method for all businesses. However, certain businesses
may prefer one over the other depending on the following factors:
��� Business Size: Smaller businesses may prefer cash accounting
because it���s simpler and requires
less bookkeeping. Businesses often switch to accrual accounting
as their businesses grow to more
accurately reflect their revenue
and expenses.
��� Tax Deductions: Cash or accrual accounting may be more beneficial when filing taxes.
��� Internal Accounting: Using the
same accounting method internally and for tax purposes simplifies
the accounting process. However,
the IRS does allow a different
method for internal accounting use
and tax accounting.
Every cattle busine ss
chooses its accounting
method when the first
ALANCE
tax return is filed.
HEET
Once an accounting
method has been
selected it is usually necessary to
INCOME
receive the approv a l of the
REVENUE IRS before
changing that
me thod. The
IRS���s Form 3115,
Applic ation for
NAGEMENT Change in Accounting Method, is used to
request a change in an
overall accounting method as well
as the accounting treatment of any
item of income or expense.
Ideally, all feedlot operators
would opt for an accounting
method that showed the business���s
real-time financial health. Until
now however, the complexity of
accrual accounting has dissuaded
many cattlemen from adopting it.
What is the best accounting method for your feedlot
FL
operation?
Consider this:
Business Size ��� Smaller businesses may prefer cash
accounting because it���s simpler and requires less bookkeeping.
Tax Deductions ��� Decide which is more beneficial
when filing taxes
Internal Accounting ��� Do you use the same
system internally as for tax purposes?
Circle No. 109 on Reply
FEED���LOT April/May 2013
11