Question

Joe doesn’t know if this move to a corporation will have an impact on his accounting method. He has an average annual gross receipts for the last few years of $30 million. What would Joe’s accounting method have been in each of the following forms of business? Possible answers for 13 and 14 – a. Cash b. Accrual

Sole Proprietorship –
C-Corporation -

Answer 1

In a sole proprietorship, Joe's accounting method would likely be cash, while a C-Corporation may require the use of the accrual method.

Step-by-step explanation:

In a sole proprietorship, Joe's accounting method would likely be the cash method because it is commonly used by small businesses. This method records revenue when cash is received and expenses when cash is paid. The accrual method, on the other hand, records revenue when it is earned and expenses when they are incurred, regardless of cash flow.

When Joe transitions to a C-Corporation, the accounting method may change to the accrual method. C-Corporations are typically required to use the accrual method for bookkeeping and reporting purposes, especially if the average gross receipts exceed certain thresholds.

It is important for Joe to consult with a professional accountant or tax advisor to determine the appropriate accounting method for his specific situation.