Introduction
Each taxpayer (business or individual) must figure taxable income on an annual accounting period called a tax year. The calendar
year is the most
common tax year. Other tax years are a fiscal year and a short tax year.
Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income
and expenses. The most
commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income
in the tax year you
receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax
year you earn it,
regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is
made.
This publication explains some of the rules for accounting periods and accounting methods. In many cases, however, you may
have to refer to the
cited sources for a fuller explanation of the topic. Section references are to the Internal Revenue Code and regulation references
are to the Income
Tax Regulations.
This publication is not intended as a guide to general business and tax accounting rules.
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