Question

7) A cash-basis taxpayer must always include checks in income in the year received. True or False

18) A sale may be reported on the installment method even though no payments are received in the year of sale. True or False

19) Sasha owned an apartment building, but she retained a real estate agent to manage the building and collect rents. Following his usual practice, the agent collected the December 2019 rents and mailed them to Sasha. Sasha did not receive them in the mail until January 3, 2020. Sasha must report the rents in income in 2020. True or False

20) All taxpayers must use the accrual method for sales and cost of goods sold if inventories are an income-producing factor to the business. True or False

Answer 1

7) TRUE. As per cash basis, incomes are recorded in the year of receipt. However in accrual basis, income is recorded in the year it is earned

18) FALSE.  The installment method is an approach to revenue recognition in which the business owner defers gross profit on a sale until receiving cash for the sale from the buyer.

19) TRUE. It does not matter when the mail was received. What matters is when the rent was earned. Income must be recorded in the month they were earned as per accrual basis

20) TRUE.  All taxpayers must use a method of accounting for inventory that clearly reflects income. If you choose not to keep an inventory, you will not be treated as failing to clearly reflect income if your method of accounting for inventory treats inventory as non-incidental material or supplies, or conforms to you financial statement treatment of all inventories.