Question

. Company ABC has accounting income $500 for year 2016, 2017 and 2018, with following balance 2015 2016 2017 2018 Accounts Payable 100 110 120 90 Unearned Revenue 100 50 30 0 Prepaid Expense 100 80 40 0 Accounts Receivable 100 110 80 100 What are the taxable income for 2016, 2017 and 2018?

Answer 1

Company uses accrual method of accounting as per GAAP for the purpose of computing accounitng income whereas cash method of accounitng for the purpose of taxable income as required by tax laws. As a result,  cash revenues and expenses in tax reporting to obtain taxable income.

2015    2016    2017    2018

Accounts Payable 100 110 120    90

Unearned Revenue 100 50 30    0

Prepaid Expense 100 80 40    0

Accounts Receivable 100 110 80    100

Taxable income 500 530 510 500

Unearned revenue would be deducted and the prepaid expenses would be added. There would be no adjustment for AR and AP