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Quick Guide: Accrual vs Cash-Based Accounting

Quick Guide: Accrual vs Cash-Based Accounting

As a small business owner, there are many decisions to be made, particularly when you’re just starting out, to ensure everything runs smoothly and efficiently. One important decision to make is selecting an appropriate accounting method for your business. Accounting methods are simply the rules your business will follow when reporting revenues and expenses. Today, we’ll dive into the two primary accounting methods — accrual vs cash-based accounting — what they mean, and how to choose between the two when setting up your business.   Before we get started, it’s important to note the IRS requires taxpayers to choose an accounting method that accurately reflects their income and to be consistent with their choice of accounting method from year to year. This is because switching between methods could potentially allow a company to manipulate its revenue to minimize its tax burdens. To change your accounting method, you must receive approval from the IRS, typically with Form 3115. It’s important to choose your method carefully; if you’re unsure which method would work best for you, consult with a tax advisor before launching your business.   Cash-Based Accounting Method  We will start with the cash-based accounting method, as it is the method most used by many small businesses. Cash-based accounting recognizes revenue when cash is received and when expenses are paid. For example, when you receive a bill from a vendor that is due next month, that expense is not recognized until it is paid. This is a simpler method because there is no need for accounts like Accounts Receivable or Accounts Payable – only cash accounts are required. This option is...
Client Spotlight: Linda Kudrna of Learning Ladder

Client Spotlight: Linda Kudrna of Learning Ladder

Linda Kudrna opened Learning Ladder in 1994 to provide the “highest quality of care to the children in the Cottage Grove community.” And for the past 30 years, she and her team have continued to do just that. The Learning Ladder hosts infant, toddler, preschool, and school-age programs for children ages 6 weeks through 12 years old. Their philosophy combines planned themes and emergent lessons to create hands-on environments that are safe and innovative and encourages learning through play, inquiry, and exploration. “The most rewarding part of my job has been being a part of an industry that is finally being recognized as a valuable service for the education of young children and for the economy,” said Kudrna. The facility has expanded twice since opening in 1994; once in 2005 when 8 classrooms were added and again in 2008 to accommodate a partnership with Monona Grove School District to offer 4k programs and wrap-around care, which begins before school hours and continues after school for families who need it. In 2014, Learning Ladder earned national accreditation from the National Accreditation Commission and received a 5-Star rating from Wisconsin’s YoungStar program. During the COVID pandemic, Learning Ladder only closed for two weeks and was able to implement additional cleaning, child health checks, and procedures that allowed them to adapt and stay open to support children in-person and virtually. Kudrna said the pandemic highlighted the importance of Early Care and Education, which she also advocates for as a board member of the Wisconsin Child Care Administrators Association. “Currently, there is a teacher shortage in childcare across the state of Wisconsin. It...