Answer:
Al should use the cash method of accounting so that he will not have to pay income taxes on uncollected accounts receivable
gross income = $292,000
gross income computed by the accrual method = $300000
Explanation:
given data
received cash = $280,000
services provided = $40,000
accounts receivable = $60,000
advance payment = $12,000
solution
as we know that Al's gross income on the cash basis is
gross income = ($280,000 + $12,000) = $292,000
and
Al gross income computed by the accrual method is as following
as we know here Cash received $292,000
gross income computed by the accrual method = Cash received - advance payment - services provided + accounts receivable
gross income computed by the accrual method = 292,000 - 12,000 - 40,000 + 60,000
gross income computed by the accrual method = $300000
so
Al should use the cash method of accounting so that he will not have to pay income taxes on uncollected accounts receivable
