Cream of the Crop 1/Cream of the Crop 1.iso/BUSINESS/SBA62.ARJ/FSBA.EXE/F206.SBE

Text File | 1992-04-30 | 2KB | 34 lines

@034 CHAP 8

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            │         ACCRUAL BASIS TAX ACCOUNTING        │
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Most large corporations (except S corporations and certain "qualified
personal service corporations") and any businesses with significant
inventories are generally required to report income and expenses on the
ACCRUAL BASIS for tax accounting purposes.  The accrual method requires
you to report income when it is earned, rather than when it's received,
in general.  Expenses can be deducted when all events have occurred
that fix the amount (and the fact) of your business's liability for a
particular expense item, even though it may be paid in an earlier year
or a subsequent year.  However, if "economic performance" required of
the other party does not occur until a subsequent tax year, you may not
be able to deduct an accrued expense until such economic performance
occurs, although there are some exceptions to this rule, such as for
recurring expenses.

Using the accrual method will often be less advantageous than the cash
method for tax purposes.  However, if yours is a business in which most
of your customers pay promptly in cash, so that you have almost no
accounts receivable, but have significant accounts payable for various
expenses, the accrual method may actually be beneficial tax-wise, by
allowing you to accelerate the deduction of such payables.  This will
result in a net tax deferral where the amount of such payables is
usually larger than your receivables at year-end.

See the discussion of CASH BASIS accounting in this program (use the
"INDX" command) or in the STARTING & OPERATING A BUSINESS book for
your state for '86 Act tax law provisions that now REQUIRE many more
taxpayers (certain C corporations) to use the accrual method, rather
than the cash method of accounting.