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    Reconstructing revenue - net worth and bank deposit methods

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    While the net worth method focuses on the balance sheet and the increase in net worth for the year the bank deposit method looks at the money deposited and withdrawn throughout the year. The bank deposit method provides an ability to reconstruct gross revenue rather than adjusted income. The bank deposit method is appropriate when most of the income is deposited in banks and most of the expenses are paid by check.

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    Solution Preview

    The above statement is true. Basically, what would be analyzed by the above includes any and all activity coming into and going out of the bank. The advantages to this method is that all deposits are accounted for. The business owner or individual cannot state that they made $30,000 in gross receipts when deposits for the year total $60,000, assuming that all deposits are business ...

    Solution Summary

    This solution compares the net worth method with the cash deposit method as a means of reconstructing gross revenue.