Cash vs. Accrual: Which Method Fits Your Business?

Choosing how to track your income and expenses is one of the most important financial decisions your business will make. The right accounting method can impact your taxes, cash flow, and overall understanding of your financial health. At Goodhart & Associates PC, we help business owners across Mandan, Bismarck, and throughout the state choose between cash and accrual methods to ensure accurate, efficient small business bookkeeping in North Dakota.

 

Understanding the Two Methods

 

Cash accounting records income when it’s received and expenses when they’re paid. It’s straightforward, making it a popular choice for smaller businesses or sole proprietors who don’t carry inventory.

 

Accrual accounting, on the other hand, records income when it’s earned and expenses when they’re incurred — even if no money has changed hands yet. This method provides a more complete picture of your business’s financial performance, especially for companies with inventory, larger operations, or long-term contracts.

 

How Each Affects Your Taxes

The accounting method you choose affects when income and deductions show up on your tax return.

  • With the cash method, taxes align closely with your bank account balance.
  • With the accrual method, you may owe taxes on income you haven’t collected yet — but you can also deduct expenses earlier.

Our team helps North Dakota businesses evaluate how each method influences taxable income, cash flow, and compliance requirements, so you can make a choice that supports your long-term goals.

 

When Accrual Accounting Makes Sense

If your business manages inventory, invoices customers, or extends credit, accrual accounting might be the better fit. This approach helps you plan for the future by showing what’s truly owed and what’s coming in. Many growing businesses in Bismarck and Mandan transition to accrual as their operations expand, often with our guidance to ensure a smooth switch.

 

Switching from Cash to Accrual

The IRS allows businesses to change their accounting method, but it must be done correctly. That includes filing Form 3115 and making adjustments to align prior-year records. Our CPAs have experience helping North Dakota businesses navigate this process and minimize disruption. Whether you’re upgrading your system or cleaning up your books, we’ll make sure your transition is accurate and compliant.

 

Key Considerations Before You Decide

  • Do you keep inventory or sell products?
  • Do you invoice customers or get paid upfront?
  • Are you planning to seek financing or investors soon?
  • Do you want a simpler or more detailed view of your finances?

The right answer depends on your business model, size, and growth goals — and we can help you evaluate every angle.

 

Talk to a North Dakota Bookkeeping Expert

Your accounting method should work for your business, not against it. Whether you’re just getting started or ready to make a change, Goodhart & Associates PC can help you choose the right approach and maintain accurate records year-round.

 

Contact us today for expert small business bookkeeping in North Dakota — and discover how the right accounting method can help your business thrive.

Choosing how to track your income and expenses is one of the most important financial decisions your business will make. The right accounting method can impact your taxes, cash flow, and overall...