Knowledge Check Three

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1. Blake sold some merchandise from his business at the end of the current tax year, but
did not receive payment until the beginning of the next tax year. Under the accrual
method of accounting, when would Blake include the income from the sale of this
merchandise?

‰ The current tax year ‰ The next tax year

2. Tina sold some merchandise from her business in the current tax year and received
a check for the sale at the end of the current tax year. She deposited the check into
her bank account at the beginning of the next tax year. Under the cash method of
accounting, when would Tina include the income from the sale of this merchandise?

‰ The current tax year ‰ The next tax year

Partial Problem
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ZIP Code.
„ Greg is self-employed as a plumber and started his business during the current tax
\HDU+LVEXVLQHVVRႈFHLVORFDWHGLQKLVKRPH*UHJGRHVnot have any employees
and does not need an EIN.
„ Greg wants to use the accounting method that corresponds with the way he has been
keeping his records, which show he includes income when he receives it and deducts
expenses when he pays them.
„ Use the list of Principal Business or Professional Activity Codes FKDUWVKRZQWR¿QG
Greg’s business code.
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‰ Cash ‰ Accrual

10-14 | Self-Employment Fundamentals of Tax Preparation