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.

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Definitions:

Equity Stake

An ownership interest in a company through the holding of its stock, indicating a financial share in the entity's assets and profits.

Entrepreneurial Capitalism

An economic system where individuals are encouraged to start and grow their own businesses, often leading to innovation and economic growth.

Sole Proprietorship

A form of business ownership where a single individual owns and runs the business, bearing full responsibility for its assets and liabilities.

Legal Structure

The framework within which an organization operates, defined by the law, including entities like corporations, partnerships, and sole proprietorships.