Question

Which business is exempt from using the accrual basis for accounting? A clothing manufacturer that has average gross annual receipts of $35 million over the last three years. An online retailer that has average gross annual receipts of $45 million over the last three years. A construction contractor who does not have any outstanding accounts receivable at the end of the tax year. A home improvement store that just began business last year and had $2.7 million in gross receipts.

Answer 1

Answer:

A home improvement store that just began business last year and had $2.7 million in gross receipts.

Explanation:

The IRS allows only a limited number of businesses to use cash basis accounting and in order to do so, the business must be:

1. Partnership or C corporation with less than $5 million in total sales revenue per year
2. Sole proprietorship or S corporation with less than $1 million in total sales revenue
3. Cannot be a publicly traded corporation
4. Personal service businesses with more than 95% of revenue specifically related to services.
5. Family owned farms with total annual sales revenue less than $25 million.