Running a daycare center is challenging enough on its own for you to have to worry about managing your expenses, which, as you may have already figured, is not as simple as one may think. You probably think of managing your accounts to be something like receiving and giving away cash, and yes, things do work that way too, but that does not mean that there aren’t other options available.

Your best bet would be to get a professional accountant on board, but if you’re convinced that you can handle your expenses on your own, it will serve you to know your options first. Cash or accrual, which one to go for, and why? For most business owners, cash transactions are the only way to do business, but is it the most efficient one?
In this article, we’ll compare the two methods of accounting to let you better understand what suits your business the best.

Accounting Via Cash

To better understand how the two options works, in cash accounting you recognize income as soon as payment is received for your services and expense are recognized as soon as you have paid it. After deducting your expenses from the income, any amount left is taxable income (loss).

Accounting Via Accrual

In accrual method of accounting, you will record income as soon as you have issued the invoice regardless of when you will get paid. In accrual method you can anticipate your expenses and record them; however, payment of these expense can be made later. Any amount left is taxable income(loss). In actual method of accounting your run the risk of including income in gross revenues (and pay taxes on) that you may never actually receive. This can be mitigated by creating an allowance for doubtful account or bad debts.

Bottom Line

Cash method is more immediate recognition of Income & expense while actual method is anticipated Income and expense. For a small business, though, the first option may work better.

In the end, you need to go with what option works the best for you!