Accounting Methods Flashcards
When can a business adopt a fiscal year?
When there is a valid business purposes and
The IRS consents
When does a cash method taxpayer recognize income?
When cash or its equivalent is actually received or
Cash or its equivalent is constructively received.
When is property constructively received?
Person has unqualified right to immediate possession.
T/F Accrual method taxpayers recognize income when all events have occurred that fix the right to receive it and the amount can be determined with reasonable accuracy.
T
T/F Prepaid income is generally accrued when received for accrual basis taxpayers.
T, with exceptions
When can prepaid income be recognized when accrued by accrual basis taxpayers?
When income is for services and services do not extend beyond next year.
12 month exception for prepaids
T/F Contingent liability reserves may be deducted before actual payment.
F
T/F Deduction of an amount payable to a related party is allowed only when includible in gross income of the related party
T
What entities are generally required to use the accrual method?
C corps, partnerships with C corp as a partner, certain trusts, and tax shelters.
What is the gross receipts exception to entities that otherwise must use accrual method?
They may use cash if gross receipts for past three years average under 30 million. (Except tax shelters)
T/F A taxpayer who maintains inventory must use the accrual method with regard to purchases and sales.
T
When can taxpayer use LIFO inventory accounting?
When they also use it for book purposes.
T/F The installment method is required for installment sales by both cash-method and accrual-method taxpayers unless an election is made not to apply the method.
T
How does accounting method affect 1245 recapture treatment?
It doesn’t, must be recognized immediately even if installment sale.
