Question

Mike started a calendar year business on September 1st of this year by paying 12 months of rent on his shop at $1,000 per month. What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?

Answer 1

accrual method = $4000

cash method = $12000

Step-by-step explanation:

given data

rent = $1000

time = 12 month

to find out

maximum amount of rent

solution

we know from 1 September mika start paying rent

so September to December = 4 months

so by accrual method

accrual method = rent × time

accrual method = 1000 × 4

accrual method = $4000

and

by cash method

cash method = rent × time

cash method = 1000 × 12

cash method = $12000