ForumsAccounting and Budgeting

While the distinctions between cash basis and accrual basis would seem to be clear, the reality is that few businesses use strictly cash basis accounting and never account for any liabilities. Most businesses using cash basis accounting for tax purposes use what is called modified cash basis accounting. It's cash basis accounting with a couple of exceptions for liabilities that are allowable under IRS.

The first exception is for credit card purchases. Under IRS rules, even if you are using cash basis accounting, you are allowed to take deductions for business credit card purchases before you've paid the credit card bill. Therefore, you'd be denying yourself some important deductions if you didn't account for the credit card expenses.

Another exception is in the case of asset purchases. If you borrow money to buy equipment or real estate for your business, you are entitled to take depreciation deductions on those assets even though you're using cash basis accounting. You also take interest deductions to the extent you pay interest.

Under cash basis rules, you cannot take deductions for trade payables you haven't paid. You also don't have to account for income you may have earned but haven't received cash payment from your customer.

If you want to do more research on this, I would look up rules on modified cash basis accounting and follow those rules consistently. The important thing is consistency and reporting transactions consistently year to year.