Question

In: Accounting

Go to the IRS Web site (www.irs.gov) and find the 2016 edition of the IRS Publication...

Go to the IRS Web site (www.irs.gov) and find the 2016 edition of the IRS Publication 538 (PDF file), Accounting Periods and Methods. Find the pages on Inventories. What are the revenue procedures that permit qualifying taxpayers and qualifying small business taxpayers to use the cash method for accounting for inventories?

Answer the following questions.

1. What page of the publication does the discussion of inventory start? ___________

2. The qualifying taxpayer under Revenue Procedure(a. 2001-2 b. 2001-10 c. irb02-02) and a qualifying small business taxpayer under Revenue Procedure (a. 2002-18 b. irb02-18 c. 2002-28) can use the cash method of accounting even if they produce, purchase, or sell merchandise.

3. The gross receipts test for a qualifying small business taxpayer is determined (a. by election b. each period tax year ending on after 12/31/2000 c. over a three period). The average annual gross receipts must be __________$ million or less for each test year listed.

Solutions

Expert Solution

1. discussion of Inventory starts from Page 13.

2. The statement mentioned in part 2 is True.

It is mentioned that to account for an inventory in the business (production, purchase or sale of merchandise), you must use an accrual method of accounting. But there are a certain exceptions. The following taxpayers can use cash method of accounting:

  • The qualifying taxpayer under Revenue Procedure(a. 2001-2 b. 2001-10 c. irb02-02)
  • qualifying small business taxpayer under Revenue Procedure (a. 2002-18 b. irb02-18 c. 2002-28)

This information is also provided on page 13.

3. The gross receipts test for a qualifying small business taxpayer is determined  (a. by election b. each period tax year ending on after 12/31/2000 c. over a three period). The average annual gross receipts must be $10 million or less for each test year listed.

It is mentioned on page 14 point 1 of "Qualifying small business taxpayer".

Below is the link to the pdf ducument: https://www.irs.gov/pub/irs-pdf/p538.pdf


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