ANSWERS: 2
  • Generally the only companies that use cash-basis accounting are small individual proprietorships. While I've known of some very small corporations that used cash-basis accounting, most have moved to accrual accounting on the recommendation of their accountants.
  • Any sized service business is allowed to use cash-basis accounting and they often do. Also, small non-profit organization, proprietorship, corporation, partnership or limited liability company could also use cash basis if they wish. Companies that sell merchandise or manufacture products have inventory and therefore the IRS requires that they use accrual basis.

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