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:

Quantity Consumed

The total amount of a good or service that is used or purchased by consumers within a particular period of time.

Downward-Sloping

Describes a line or curve on a graph that shows a decrease in one variable in response to an increase in another.

Price-Consumption Curve

A curve that shows how a consumer's optimal choices change as the price of a good changes, holding income and other prices constant.

Income

Money received, especially on a regular basis, for work or through investments.