In: Accounting
Choose at least two (2) specific transactions and determine the types of accounting methods that would be available for your business. Recommend the method that would minimize the tax liabilities for the company. Provide support for your rationale.
Solution:-
1. Choose at least two (2) specific transactions:-
Sr. No. | Specific transaction |
1. | Rent |
2. | Service revenue |
2. Determine the types of accounting methods that would be available for your business:-
?
3. Recommend the method that would minimize the tax liabilities for the company:-
The cash method offers several advantages: it is simpler than the accrual method; it provides a more accurate picture of cash flow; and income is not subject to taxation until the money is actually received. A disadvantage of the cash method is that expenses and revenues are not matched in time. For example, if a company provides landscaping services to a client in early April, it will likely send that client an invoice in May and may not receive payment for the services provided until June. Meanwhile, employees will be paid for the time they spent on the project in April and May. Accordingly, the accounting records will show high expenses in April and May with no corresponding income.
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