An accounting method is a set of rules used to determine when and how to record income and expenses on your books and for tax-reporting purposes.
There are 2 principal methods of accounting: cash basis and accrual basis. Use of a particular method determines when a deduction can be claimed. However, restrictions apply for both methods of accounting. Also, the form of business organization may preclude the use of the cash method of accounting even though it may be the method of choice.
Cash method is the simpler accounting method. Income is reported when it is actually or constructively received and a deduction can be claimed when and to the extent the expense is paid.
Actual receipt is the time when income is in your hands. Constructive receipt occurs when you have control over the income and can reduce it to an actual receipt.
Payments received by check are income when the check is received even though you may deposit it some time later. However, if the check bounces, then no income results at the time the ...