Question

A taxpayer not required to use the accrual method of accounting can use the cash method to account for its purchases and sales of goods and the accrual method to report all other items.

True

False

Answer 1

False,

A Taxpayer should not use both the methods ,He should use only any one method for entire business entity transactions which may either cash method or accrual but does not use both of the methods for singal entity transactions.

Generally small business chooses cash method of accounting

As the method of business effect the tax payment of the business if we use the cash method we can reduce the Tax burden because we need to pay only when cash is received on purchase and sales and all other items and deductions also based on cash basis, However in case of accrual system it is required to pay large tax burdens because all incomes and expenses and deductions are applied even the cash is not recieved which results in over showing of Profit as a results lead to more pay of Tax.

However Some of the companies instructed   to must follow the Accrual Basis of accounting by the Tax authority. I .e Cash method is not allowed.