Cash Basis Accounting

The tax regulations let businesses figure their taxable income on a cash basis, rather than on the accrual basis. Cash basis accounting can result in postponing the payment of income tax and VAT or Sales Tax, although it ordinarily doesn't reduce the total amount of income tax over a period of years.

For example, if you report sales revenue only when you receive cash from credit customers, rather than when you make the sale, taxable income tends to be postponed to a later period. Eventually, however, you do pay a tax on the same amount of income.

Calculating taxable income on a cash basis usually is easy to do by using the records that you are keeping for financial accounting purposes. Most businesses make this calculation only at the end of the year or the VAT/Sales Tax period, not monthly.