Todd Operates a Business Using the Cash Basis of Accounting

question 118

Multiple Choice

Todd operates a business using the cash basis of accounting. At the end of last year, Todd was granted permission to switch his sales on account to the accrual method. Last year, Todd made $420,000 of sales on account, and $64,000 was uncollected at the end of the year. What is Todd's §481 adjustment for this year?

• A)Increase income by $420,000
• B)Increase income by $16,000
• C)Increase expenses by $64,000
• D)Increase expenses by $420,000
• E)Todd has no §481 adjustment this year.

---

Definitions:

Hazardous Materials

Substances that pose risks to public health, safety, or the environment if not properly controlled or contained.

Contingent Liabilities

Potential obligations that may occur depending on the outcome of a future event.

Environmental Protection Agency

A federal agency charged with protecting human health and the environment by writing and enforcing regulations based on laws passed by Congress.

Product Warranty

A promise or assurance given by a manufacturer or seller to a buyer that a product is free from defects and will perform as specified for a certain period of time.