BENCH SMALL BUSINESS GUIDES Step 3. Choose an accounting method: cash or accrual It’s important to choose either a cash or accrual accounting method before you start your books. If you’re using cash accounting, you only record transactions when money has exchanged hands. So if you billed a customer today, those dollars wouldn’t enter your ledger until the customer paid you. Using the accrual accounting method, you would record the income when you bill the customer, rather than waiting for them to pay you. So at the end of the tax year, you’ve recorded all income that you earned during that year, even if you haven’t collected it yet. Same goes for deductions. You deduct them when you’re billed, not when you pay. If your company has inventory, in most cases you’ll be expected to use the accrual method. 9