Accounting methods & §481(a) — EA Part 2 Widgets

What this does

How to read it Visual: twin columns — what each method picks up this year.

Compare cash vs accrual timing on the same facts, then sketch a §481(a) catch-up when changing methods.

Visual: twin columns — what each method picks up this year.

Timing example

Services performed in Dec; paid in Jan Expense incurred Dec; paid Jan (economic performance met) Check available Dec 31 (constructive receipt)

Cash method (this year)

Accrual method (this year)

§481(a) catch-up (method change)

AR not yet taxed under old cash method AP not yet deducted under old cash method 3-yr avg gross receipts

Cash vs accrual this year

Net positive §481(a) sketch

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Cash method eligible? (2025 ≤ $31M)

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Exam trap: Constructive receipt is still cash-method income. Changing methods generally needs Form 3115; §481(a) prevents omission/duplication. C corps / pships with C corp partners / tax shelters face §448 limits unless gross receipts test met ($31,000,000 for 2025).

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Study tool only — not official IRS software. Figures labeled 2025 track law/forms through Dec 31, 2025. Confirm against current IRS pubs before the exam.