Respuesta :
Under following circumstances may a cash-method business be allowed to use the cash method to account for inventory:
1. It is predominantly a retail business, and during the past three years, average yearly gross receipts have not exceeded $26 million.
2. It is predominantly a service-based company, and over the last three years, average gross receipts have not exceeded $26 million each year.
What is Cash-method Business?
Cash basis accounting would result in significant discrepancies between inventory accounting and reported revenues and expenses if a corporation elected to monitor purchases and sales using this method.
Both the overall cash method and the overall accrual method of accounting are generally acceptable for small businesses. A taxpayer can postpone revenue under the cash method (which is often simpler than the accrual method) until cash is received; but it cannot deduct expenses until the money has actually been paid.
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