Lesson 2 (Ch. 4)

Question 1

Cash Basis Accounting Method

Answer 1

Taxpayers recognize income when it is received (made available to them to access) and expenses when they are actually paid.

Used by individuals and many small businesses

Question 2

Accrual Basis Accounting Method

Answer 2

Taxpayers recognize income when it is earned and expenses when they have been incurred.

Used by large businesses and publicly traded companies

Question 3

Penalties for IRA Distributions

Answer 3

Too Early (Before 59.5) - 10%
Too Much - 6%
Too Late - 50%