Finaloop fully supports both cash and accrual based accounting. We prepare the books as per the method you chose when you set up your account and can maintain your books in either method.
Generally, we recommend you set your books to whichever method you use for filing your tax return.
Here's why.
Similar to Quickbooks or Xero, we also have a button that allows you to change between cash and accrual. But, this is where our similarities end.
With Quickbooks or Xero, when you toggle the button, essentially only 2 changes happen to your books:
Timing changes for your bills / payables based on when your expenses are incurred (accrual) versus when they are paid (cash).
Timing changes on your invoices/ receivables based on when your income is earned (accrual) vs when the cash is received from your customers (cash).
In reality, there are other several other differences between cash and accrual that generic accounting software doesn't take into account, such as the potential impact on COGS calculations, payroll adjustments, loans, etc.
Finaloop is a full bookkeeping service and not just a software.
This means that when our bookkeeping team conducts the year-end closing process of your books to get you ready for tax filing, we review everything (and we mean EVERYTHING) to get your books completely tax-ready.
To make sure your books are completely tax-ready, the year-end closing process should be done in the method you will file your taxes in to ensure everything is accurate for tax purposes.
For example, if you keep your books in accrual but want to file your taxes on a cash basis, we'll need to convert your books to a cash basis during the year-end process (which means your accrual books won't be available for a couple of weeks and you'll only have access to your books on a cash basis).
This process is what enables you to have a much a higher level of accuracy for tax filing purposes (and will allow your CPA to better trust the numbers he's getting for filing purposes 😁).
If you still want to keep your books and your taxes in separate methods, we recommend you keep the books in one method throughout the year and have your CPA do the tax adjustments outside of Finaloop so you have full visibility without numbers changing when we switch you over for your year-end process.
If this isn't an option and you'd like us to make this change for you in Finaloop, just send us an email to [email protected] and we'll make this change for you.
How do I know if I file my taxes in cash or accrual?
If you aren't sure if you filed taxes on a cash basis or accrual basis, you can check out this article, to help you identify which method of accounting you used in your past tax return (if filed), explain the pros and cons of each method, and help you choose the best option for your brand.