Are you keeping Accurate Record Books?

There are two different types of accounting methods; the accrual method and the cash method. The method you choose will be based upon your business structure, sales volume, and whether or not you sell on credit. The cash method is the most basic method of accounting and most commonly used amongst small businesses. Under the cash method, income and expense are not recognized until they actually occur.

Example: You sell a product to your customer on September 25, but you don't receive payment until October 3. Under the cash method of accounting that revenue would be recognized in October. Under the accrual method of accounting the revenue would be recognized in September.

Small businesses with annual revenues less than $5 million a year are free to choose either method of accounting. The cash method provides a more accurate picture of your current cash position, but may be misleading in terms of long-term profitability.

The accounting method you choose will have a significant impact on your taxes. Under the cash method of accounting you may incur an expense at the end of December 2008, but you don't pay it until January 2009. In this case you will not be able to deduct the expense in 2008, but would have to wait until you file your 2009 tax return.

The network marketing industry is constantly growing and catching the eye of the IRS. In order to protect yourself, your assets and your business you must keep accurate accounting records. Without accurate records the IRS could seize your business or even your personal assets (depending on what type of entity you have).