Chapter 6 Cash method

Question 1

Taxable income = ?

Answer 1

Income - deductions

Question 2

Exception 1: Inventory

Answer 2

Must be accrual, when you sell it.

Question 3

Exception 2: Interest Expense

Answer 3

Must be accrual, how much you owe.

Question 4

Exception 3: Prepaid Expense

Answer 4

1) if benefit period is 12 months or less AND
2) benefit period may not extend beyond the year following the year of the cash payment

Question 5

Exception 4: Corporations

Answer 5

25 million cash receipts, or more, use accrual