AICPA Seeks to Preserve Use of Cash Method Accounting
The American Institute of Certified Public Accountants (“AICPA”) wants Senate Finance Committee Chairman Orrin Hatch to prevent restricting the use of cash method accounting. In a July 17 letter to Hatch on Congress’ current tax reform efforts, the AICPA said cash method accounting provides a simpler application choice than the accrual method. In addition, the AICPA argued that the cash method creates fewer compliance expenses, and taxpayers aren’t required to pay tax prior to receiving related income.
Companies that apply cash accounting disclose revenue and costs when they are received and paid. Small companies with yearly gross receipts of under $5 million and professional services firms are permitted to use the simpler method. Large companies that use accrual accounting, however, record revenue when it is earned and costs when they incur.