Cash Method Versus Accrual Method

Businesses face a choice between two important methods of calculating taxable income for federal income taxes: the cash method and the accrual method.

Based on your readings for the module, respond to the following:

  • What factors determine a company’s choice between the cash method and the accrual method in accounting for income taxes?
  • Give an example of a particular transaction and describe how the two methods would account for that transaction differently.

Write your initial response in two to three paragraphs.

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