Roger Philipp, CPA describes Cash Basis accounting, which is the standard reporting method for individual taxpayers. Follow along closely, as Roger explains which entities and organizations are prohibited from using this method. As an added bonus, Roger clarifies the successful construction of a written communication... a very important element of the CPA Exam. This video is an excerpt from the REGULATION portion of the Roger CPA Review Online/USB course.

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------Companion text from the Roger CPA Review REGULATION Text Book------

Cash Basis

Most individuals use the Cash basis of accounting, however the accrual method is required for purchases and sales of inventory.

  • Service type businesses whose gross receipts do not exceed $10M may use the cash basis. This includes:
    • Most individuals, S-corps and individually owned Partnerships

Some entities that are prohibited from using the cash basis include:

  • C corporations with gross receipts exceeding $5M
  • Partnerships that have a C corporation as a partner exceeding $5M
  • Tax shelters
  • Certain trusts

Cash Basis:

  • Recognize Income
    • Cash or property received
    • Actually or Constructively received(made available earlier of two)

  • Report Deductions
    • Cash or check is disbursed
    • Expense charged on a credit card