Question

Which of the following choices are advantages to the taxpayer of choosing the cash-method of tax reporting rather than the accrual-method?

a) There is more flexibility to time the recognition of income and deductions.
b) It is required for C corporations and partnerships with corporate partners unless they meet certain size requirements.
c) The cash method provides a better matching of revenues and expenses.
d) Bookkeeping is easier.

Answer 1

The main advantages of the cash method of tax reporting are the flexibility it offers in timing income and deductions, and the ease of bookkeeping.

Step-by-step explanation:

The advantages to the taxpayer of choosing the cash-method of tax reporting rather than the accrual-method are specifically related to the timing and simplicity of financial management. The correct answer is:

• There is more flexibility to time the recognition of income and deductions. This allows taxpayers to strategically recognize income in years when they might be taxed at a lower rate and defer deductions to years when they might be taxed at a higher rate.
• Bookkeeping is easier because transactions are only recorded when cash actually changes hands, simplifying the tracking of income and expenses.

Choice b) is incorrect because it describes a requirement rather than an advantage, and choice c) inaccurately attributes the accrual method’s strength in revenue-expense matching to the cash method.