1. Cash vs. Accrual Method November 2013

2. C Corporations  C Corporations are generally required to use accrual method of accounting  $1 million gross receipts exception for small businesses  Average annual gross receipts of $1 million or less  Three year period ending with the applicable prior year  $5 million gross receipts exception  Average annual gross receipts of $1 million or less  Three year period ending with the applicable prior year  Inventory may not be a material income producing factor

3. S Corporations  S Corporations are able to use cash method of accounting unless inventory is a material income producing factor  $1 million gross receipts exception for small businesses  Average annual gross receipts of $1 million or less  Three year period ending with the applicable prior year  $10 million gross receipts exception  Available to taxpayers whose principal business activity is not manufacturing  Average annual gross receipts of less than $10 million  Three year period ending with the applicable prior year

4. Partnerships  Partnerships are able to use cash method of accounting unless inventory is a material income producing factor  $1 million gross receipts exception for small businesses  Average annual gross receipts of $1 million or less  Three year period ending with the applicable prior year  $10 million gross receipts exception  Available to taxpayers whose principal business activity is not manufacturing  Average annual gross receipts of less than $10 million  Three year period ending with the applicable prior year  Cannot use cash method if there is a C Corp partner unless the partnership has less than $5 million in annual gross receipts  Three year period ending with the applicable prior year