Question

Which business is exempt from using the accrual basis for accounting?
A computer software company that has average gross annual receipts of $40 million over the last three years.

A retail store that grossed $32 million in 2018, which was its first year in business.

A construction contractor who does not have any outstanding accounts receivable at the end of the tax year.

A toy store that just began business last year and had $1.2 million in gross receipts.

Answer 1

The correct answer is A construction contractor who does not have any outstanding accounts receivable at the end of the tax year.

The Accrual basis of accounting should be used When the company holds inventory, it belongs to C corporation and has revenue of more than $5 Millions.
In case of Option C, these cases are not applicable, Therefore, the construction contractor is exempted from using accrual basis of accounting.

The company which is enagaged in providing buy or sell items and provide credit to customers on the purchase are also required to use accrual basis of accounting, therefore, Option A,B, D are wrong