The U.S. House of Representatives is considering a law that would require companies with over 10 million in annual gross receipts to use the accrual method of accounting.
The AICPA and other organizations are encouraging the House leadership to preserve the cash method for those who want to use it. A bipartisan majority of representatives is already on board, and last month, a similar Senate effort generated the support of 46 members.
The accrual method counts money as earned when services are preformed — regardless of when payment for those services is actually collected. If the accrual method were imposed on businesses, it would mean that they would have to pay taxes on money not yet in their accounts. Not only would that create cash-flow management problems, it would also require some businesses to borrow money just to pay taxes.
Mandating accrual accounting isn’t a good idea, and it looks like most of our Representatives agree.