Accounting & Bookkeeping & Small Business Forum

[Guest]

Hi there,
I am new to concepts of accounting, as well as the US legislation. I am developing a billing software for the healthcare industry and my question is:
Is there any LAW in US that tells if a given enterprise has to use double entry bookkeeping? I know that it is better than the single entry bookkeeping method, but I am looking for legal restrictions. Please, send me a link with the legislation if any
Best Regards
Nestor

[Guest]

Publicly traded companies are required under SEC law to use double entry accounting and full disclosure rules.

Small companies, however, are not governed by the SEC and therefore have more flexibility in their choice. The only law I'm aware of regarding bookkeeping methods is within the IRS rules for calculating income tax. Partnerships and Corporations are required to use double entry accounting. However, Proprietorships my choose the method that serves them best, although their records must be accurate. Inaccuracies will be penalized regardless of which method is used. Due to the checks and balances in the double-entry system, you have more chance of catching and correcting the errors, than you do in the single-entry system. So the preference is to use a double-entry system whenever possible.

[Guest]

Yes and no - Generally, no single accounting method is required as long as it clearly reflects income and expenses and maintains adequate records to file a correct tax return. But, the IRS requires businesses to use the "accrual" accounting method for certain tax reporting and deductions (e.g., inventories and bad debt deductions). The accrual method requires using debits and credits to align the use of resources with the correct time period. If you are writing software, I highly advise using the accrual method as the basis. You should consult with a CPA to review for tax law and GAAP compliance.