Question

Al is a medical doctor who conducts his practice as a sole proprietor. During 2014, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in 2013. At the end of 2014, Al had accounts receivable of $60,000, all for services rendered in 2014. In addition, at the end of the year, Al received $12,000 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2015. Compute Al

Answer 1

Answer:

Al should use the cash method of accounting so that he will not have to pay income  taxes on uncollected accounts receivable

gross income =  $292,000

gross income computed by the accrual method = $300000

Explanation:

given data

received cash = $280,000

services provided = $40,000

accounts receivable = $60,000

advance payment = $12,000

solution

as we know that Al's gross income on the cash basis is  

gross income = ($280,000 + $12,000) = $292,000

and

Al gross income computed by the accrual method is as following

as we know here Cash received $292,000

gross income computed by the accrual method = Cash received - advance payment - services provided  + accounts receivable

gross income computed by the accrual method = 292,000 - 12,000 - 40,000 + 60,000

gross income computed by the accrual method = $300000

so

Al should use the cash method of accounting so that he will not have to pay income  taxes on uncollected accounts receivable