《税收概述》（英文版） Chapter 11 Accounting Periods and Methods

Chapter 11 Accounting Periods and Methods

Chapter 11 Accounting Periods and Methods

Learning objectives Explain the rules for adopting and changing an accounting period Explain the differences among cash, accrual and hybrid accounting Determine whether specific costs must be included in inventory

Learning Objectives • Explain the rules for adopting and changing an accounting period • Explain the differences among cash, accrual, and hybrid accounting • Determine whether specific costs must be included in inventory

Learning objectives Determine the amount of income to be reported from a long-term contract Compute the gain to be reported from an installment sale Compute the amount of imputed interest in a transaction Determine the tax treatment of duplications and omissions that result from changes of accounting methods

Learning Objectives • Determine the amount of income to be reported from a long-term contract • Compute the gain to be reported from an installment sale • Compute the amount of imputed interest in a transaction • Determine the tax treatment of duplications and omissions that result from changes of accounting methods

Accounting Periods Required payments and fiscal years Returns for periods of less than 12 months May be required to file a short period eturn Must annualize their taxable income

Accounting Periods • Required payments and fiscal years • Returns for periods of less than 12 months – May be required to file a short period return – Must annualize their taxable income

Accounting Periods Generally need IRS approval to change accounting period Business has to establish a substantial business purpose to change accounting period IRS approval is not necessary Conformity between newly married spouses Change to a 52/53 week year ending in the same calendar month as the prior tax year Certain corporation which have not changed accounting periods within 10 years

Accounting Periods • Generally need IRS approval to change accounting period • Business has to establish a substantial business purpose to change accounting period • IRS approval is not necessary – Conformity between newly married spouses – Change to a 52/53 week year ending in the same calendar month as the prior tax year – Certain corporation which have not changed accounting periods within 10 years

Overall Accounting Methods Cash receipts and disbursements method Accrual method Hybrid method

Overall Accounting Methods • Cash receipts and disbursements method • Accrual method • Hybrid method

Cash Receipts And Disbursements Cash receipts and disbursements method Report income for the tax year in which payments are received Expenses deducted in the year paid Most individuals and many service businesses use the cash method

Cash Receipts And Disbursements • Cash receipts and disbursements method – Report income for the tax year in which payments are received – Expenses deducted in the year paid – Most individuals and many service businesses use the cash method

Accrual Method Report income and deduct expenses under the all-events and economic performance test Taxpayers right to receive income and can be determined with reasonable accuracy

Accrual Method • Report income and deduct expenses under the all-events and economic performance test • Taxpayer’s right to receive income and can be determined with reasonable accuracy

Accrual Method Deduction is met when liability is established and the amount of expense can be determined with reasonable accuracy Economic performance occurs when property or services are actually rendered by the other party

Accrual Method • Deduction is met when liability is established and the amount of expense can be determined with reasonable accuracy • Economic performance occurs when property or services are actually rendered by the other party

Hybrid Method Use the accrual method for sales and purchases, but may use cash method for other income and expenses Least used method

Hybrid Method • Use the accrual method for sales and purchases, but may use cash method for other income and expenses • Least used method