California Business Portal

What is an accounting method?

An accounting method is a set of rules used to determine when and how income and expenses are reported. While there are several methods of accounting, the two most common are the cash and accrual basis. You should choose an accounting method for your business that will most accurately match your income and associated expenses. This method is referred to as the "matching principle."

The following are some generally used accounting methods: 
  • Cash method.
  • Accrual method.
  • Special methods such as percentage-of-completion or completed contract method which are generally only used for long-term construction projects like real estate developments.
  • Combination method using elements of two or more of the above.

If the Franchise Tax Board examines your tax return, they may ask you to show: 
  • The method of accounting used to report your income and expenses.
  • The method accurately reflects your income, and that you use it consistently.

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