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Summary In 2023, the taxpayer became ineligible to use the cash method of accounting. At the begin $7.99   Add to cart
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Summary In 2023, the taxpayer became ineligible to use the cash method of accounting. At the begin
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In 2023In 2023, the taxpayer became ineligible to use the cash method of accounting. At the beginning of the year, accounts receivable totaled $240,000, accounts payable for merchandise totaled $80,000, and inventory on hand totaled $320,000. Enter the Federal income tax adjustment due to the chang...

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  • October 6, 2024
  • 3
  • 2024/2025
  • Summary

Subjects

  • in 2023in 2023
  • 000
  • 000 enter the fed
  • the taxpayer became ineligible to use the cash me
  • accounts receivable totaled 240
  • accounts payable for merchandise totaled 80
  • 000 and inventory on hand totaled 320

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In 2023, the taxpayer became ineligible to use the cash method of accounting.

At the beginning of the year, accounts receivable totaled $240,000, accounts

payable for merchandise totaled $80,000, and inventory on hand totaled

$320,000. Enter the Federal income tax adjustment due to the change in

accounting method and its effect on net income.




Answer & Explanation


When a taxpayer becomes ineligible to use the cash method of accounting and

must switch to the accrual method, an adjustment is required to account for the

differences between these methods. This adjustment is known as a Section

481(a) adjustment.


Here's how you calculate it:


1. Accounts Receivable: Under the cash method, income is recognized

when received. Under the accrual method, income is recognized when

earned. Therefore, accounts receivable of $240,000 that were not

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