Question

Rebecca is a calendar-year taxpayer who operates a business. She made the following business-related expenditures in December of year 0. Indicate the amount of these payments that she may deduct in year 0 under both the cash method of accounting and the accrual method of accounting. (Leave no answers blank. Enter zero if applicable.) a. $2,900 for an accountant to evaluate the accounting system of Rebecca’s business. The accountant spent three weeks in January of year 1 working on the evaluation. b. $3,600 for new office furniture. The furniture was delivered on February 15, year 1. c. $5,200 for property taxes on her factory. d. $915 for interest on a short-term bank loan relating to the period from November 1, year 0 through January 31, year 1.

Answer 1

Answer with Explanation:

The difference between cash and accrual accounting is based on the time when when sales and purchases are recorded in account. If it is recorded at at the time of money transfer it is cash accounting, and if it is recorded at the time of billing it is accrual accounting.

For Cash Method:

a. If the payment to the accountant is made in advance $2,900 will be recorded in year 0, however, if payment is made after job is completed it will be recorded in year 1.

b. As the furniture payment is usually done after goods are received, $3,600 will be recorded in year 1. (For advance payment it will be recorded in year 0)

c. $5200 will be recorded in year 0.

d. Only that sum of the interest installment which has been paid within year 0 will be recorded.

For Accrual Method:

a. As billing is prepared at the end, $2,900 will be recorded in year 1,

b. Billing is done after goods are received, $3,600 will be recorded in year 1.

c. $5200 will be recorded in year 0.

d. Total interest payment will be recorded in year 1.