I just started my first business. I’m debating on whether to go with cash-basis accounting or accrual accounting. From what I’ve read it seems that cash-basis is the easier method, but accrual is more widely used and respected. Based on current IRS law, I can go with either method. My initial thought is to start off with cash accounting and switch to accrual later on when the company takes off. But I'm not sure if that's the best way to go. I plan on discussing this with an accountant, but I wanted to run it by here first.
I have two questions:
- Which would be the better choice for my particular situation?
- Has anyone changed their initial accounting method after a few years in service? If so, how complicated was it?
Background on my particular situation:
- Our company consists of 2 founders and no employees.
- We may hire an independent contractor in the future, but we don’t have any plans to do it in the near future.
- We're registered as an LLC and being taxed as a partnership.
- I plan on doing the bookkeeping myself, but I have no previous experience in bookkeeping.
- We’re developing a software product. Our revenue will come from selling licenses of the product.
- We don’t expect to have any income in the first year.
- We don’t expect to have any major expenses in the first year either.
- We work from home.
- We won’t have to deal with inventory.
- We’re located in Maryland.