DESCRIPTION
This module provides a comprehensive review of the tax treatment of income and expenses under both the cash and accrual methods of accounting. The session focuses on the application of the All Events Test for deducting accrued expenses and recognizing accrual-basis income, including advance payments for services, as well as the related Economic Performance rules, 3.5-month rule, and Recurring Item Exception. Participants also examine the general treatment of prepaid expenses, including application of the 12-Month Rule. Throughout the module, learners apply these concepts to client fact patterns to determine the proper timing of income recognition and expense deductions. The program is delivered through instructor-led discussion and reinforced with exercises and a case study designed to promote analysis, interaction, and practical application.
LEARNING OBJECTIVES
- Describe the key features of the cash basis method of accounting and determine which taxpayers are eligible to use the method under current tax law.
- Describe the three-prong All Events Test and its role in determining the deductibility of accrued expenses.
- Assess client fact patterns to conclude whether an accrued expense is deductible under the All Events Test framework.
- Explain the general tax treatment of prepaid expenses for accrual-method taxpayers.
- Analyze the application of the All Events Test to accrual-basis income and evaluate the proper timing of recognition for advance payments for services.
