What is meant by method of accounting for tax purposes? What are the general rules regarding selection of a method of accounting for tax purposes?
The IRS requires a selection of a method of accounting, and there are two common methods for reporting.
The cash method (cash receipts and disbursements) is the method used by most individuals and some business entities. The method specifies that income is generally reported in the year in which it is constructively received in the form of cash, cash equivalents or other property. Deductions and credits are generally taken for the year in which the related expenditures were actually paid.
The accrual method is used by many business entities and required to ...
The two common methods of accounting for tax purposes are explained following by a list of situations where one method is required over another. Next is a list of exceptions to the rules about which method must be used.