Tax Accounting

Question 1

Time Accounting Period

Answer 1

An individuals tax is based on his annual income;

timing matters

Question 2

Tax Accounting Methods

Answer 2

1. Cash receipts and disbursements method
2. Accural method

Question 3

Cash Receipts and Disbursements Method

Answer 3

RULE:

• Focuses on actual receipt or payment:
  
  • taxpayer receives income when he is paid in cash or equivalent, and
  • is allowed to take a deduction when he pays for an item

Deductions can be taken only for expenses occured in year pymt is made

Question 4

Constructive Receipt of Payment

Answer 4

If taxpayer does not have physical possession of the income, but it is set apart so she can draw upon at any time, taxpayer is deemed to have received it

Question 5

Claim of Right

Answer 5

Any money that ta can dispose of withiout restriction must be included for year of receipt, even if he might have to return all or part of it in a future year

Question 6

Recurrent deductions

Answer 6

• If taxpayer purchases a capital item (useful life of longer than a year),
• have depreciate it

Question 7

Accural Method

Answer 7

RULE

• Taxpayer reports income
• when he becomes entitled to it
• and deducts expenditures when he owes them

Question 8

Tax Benefit Rule

Answer 8

*unlike to see*

If an amount deducted from GI in one year is receoved in a later year, but the deduction in the earlier year did not result in a tax benefit, the amount recovered need not be included in GI in the year it is recovered