Which accounting method to define monthly salary?

I have a client with an S Corporation. His CPA told him to pay himself (on payroll) very month 65% of his net income. When I wanted to run the P&L I noticed there’s a $1500 difference between accrual basis & cash basis report.

Based on which accounting method I should calculate the 65%? His accounting method is cash basis but he has some AR in his report.

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  1. 10 Answers

    If his accounting method on his tax return (this can be checked on his 1120S, schedule B, question 1), you should be running the report as cash basis. Since his tax return will be generated based off of all the cash basis reports, these are the same reports you should use to calculate your 65%. You are also exactly correct in the difference of the two reports being Accounts Receivable, as this has been recognized as income on an accrual basis report, but not yet collected when considering your cash basis of accounting.

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