Mike started a calendar year business on September 1ˢᵗ of this year by paying 12 months rent on his shop at $1,000 per month.What is the maximum amount of rent that Mike can deduct this year under each type of accounting method?
A) $12,000 under the cash method and $12,000 under the accrual method.
B) $4,000 under the cash method and $12,000 under the accrual method.
C) $12,000 under the cash method and $4,000 under the accrual method.
D) $4,000 under the cash method and $4,000 under the accrual method.
E) $4,000 under the cash method and zero under the accrual method.

Question

Quizplus · Accepted Answer

Under the cash method, Mike can deduct the full $12,000 because he paid it in the current year. Under the accrual method, he can only deduct the rent for the months that fall within the current year, which is $4,000 for September to December.

Mike Started a Calendar Year Business on September 1ˢᵗ of This