Cash basis or accrual accounting for an online store

Hi,
Just trying to figure out whether an online store with a revenue under $75k that manages inventory but does not give any store credit (all payments will be received in advance either by credit card or bank transfer from customers):

1-) can bookkeep and do accounting on cash basis-only? In USA, if you keep inventory you cant use cash basis accounting, even if you are a small fish...

2-) if in the future this online store will buy from overseas suppliers without being registered to GST, can still continue cash basis-accounting?

3-) are there any strong suggestions against cash basis accounting and to choose accrual accounting, considering the business owner will want to do all bookkeeping and accounting, simpler choice is preferred...

 

It is not something you can choose.

For income tax, a business of trading is on accruals.

However, small turnover businesses may use a cash basis for their GST obligations.

Do not confuse the two !

Cheers,

Rob

 

You can use cash or accruals method for accounting for income tax as well. It depends on how you run you business from a day to day aspect and if your records also reflect this.

This is reflected in TR98/1 and also Carden's case "A taxpayer determines when income is derived by adopting a method of accounting for income. When accounting for income, for tax purposes, a taxpayer must adopt the method of accounting that, in the circumstances, is appropriate. A method of accounting is appropriate if it gives a 'substantially correct reflex' of that income".

for example, a large law firm would rely on keeping track of its debtors and creditor so would be taxed on accruals method. A sole practicing lawyer may only be concerned about when cash is received in the bank so would be taxable on a cash method. There is no defiinitve rule just based on the facts of the case and is a question of fact. The way you account for things on your accounting system would help.

It would seem in your case that you would be running a cash method. You may want to consider running accruals if you have a significant amount of upfront payments prior to goods being sold because under accruals method this may not be taxable until you deliver the goods.

 

It is possible for a small business to use the cash basis, usually small business supplying just knowledge or skills but I cannot see how it affects you. If you managed to qualify for using the cash basis it refers to income, you still claim deductions when they are incurred, and since you receive cash upfront you get the same result.

I think you are confused about the Simplified Tax System that allowed cash accounting for income and outgoings. That option was removed several years ago.