Income - Accounting Methods & Periods

Question 1

What entities are required to use the accrual method for Sales and Cost of Goods Sold?

Answer 1

Taxpayers for whom sales of inventory constitute a substantial source of income.

Question 2

Describe the cash method of accounting.

Answer 2

Recognizes income (and expenses) in the year in which payment is received (or paid.)

Question 3

Describe the hybrid method of accounting.

Answer 3

Allows cash basis for all income and expenses except that sales and purchases of inventories must be accounted for under the accrual method.

Question 4

When are leasehold improvements recognized as income?

Answer 4

The fair value of leasehold improvements is income to the landlord if the improvements are made in lieu of rent.