Income Tax--Accrual Accounting for Prepaid Income

and Estimated Expenses

A business that maintains its records according to an accrual

method of accounting treats the right to receive income as income

received, and the obligation to pay expenses as expenses paid,

although the income may not, in fact, be received nor the ex-

penses, in fact, be paid during the accounting year.' This method

of accounting is distinguished from the cash method under which

income and expenses are accounted for during the year the

payment is received or made. 2 When the accrual method is used,

an income tax problem arises as to the exact year in which pre-

paid income and estimated expenses should be considered for

income tax purposes. This Comment addresses itself to a discus-