Generally, businesses must use the accrual basis accounting method if they have inventory of any component of items that they sell to the public and if the sales are more than $5 million per year.

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This is because the accrual basis accounting method is required under the Generally Accepted Accounting Principles (GAAP) for businesses with inventory and a certain level of sales. Specifically, businesses with inventory must use the accrual basis if their average annual gross receipts for the prior three years is more than $25 million, or if the business is a corporation with any gross receipts for the year and is required to file a federal income tax return. Additionally, businesses with inventory and sales of more than $1 million per year may also be required to use the accrual basis for tax purposes.

Generally, Businesses Must Use the Accrual Basis Accounting Method If