Accounting Method An accounting method is a set of rules used to determine when andhow to report income and expenses in your books and on your income taxreturns. There are two basic accounting methods. Cash method. Under the cash method, you reportincome you receive during the year. You usually deduct expenses in thetax year you pay them. Accrual method. Under the accrual method, yougenerally report income when you earn it, even though you may receivepayment in a later year. You deduct expenses in the tax year you incurthem, whether or not you pay them that year. For other methods, see Publication 538. accommodation in BonnIf you need inventories to show income correctly, you mustgenerally use an accrual method of accounting for purchases and sales.Inventories include goods held for sale in the normalcourse of business. They also include raw materials and supplies thatwill physically become a part of merchandise intended for sale.Inventories are explained in Publication 538. You must use the same accounting method to figure your taxableincome and to keep your books. Also, you must use an accounting methodthat clearly shows your income. In general, any accounting method thatconsistently uses accounting principles suitable for your trade orbusiness clearly shows income. An accounting method clearly showsincome only if it treats all items of gross income and expense thesame from year to year. More than one business.When you own more than one business, you can use a differentaccounting method for each business if the method you use for eachclearly shows your income. You must keep a complete and separate setof books and records for each business. Changing your method of accounting.Once you have set up your accounting method, you must get IRSapproval before you can change to another method. A change inaccounting method not only includes a change in your overall system ofaccounting, but also a change in the treatment of any material item.For examples of changes that require approval and information on howto get approval for the change, see Publication 538.