Determination of Gross Income Based Upon Method of Reporting

*This information is for Model City Tax Code purposes only.

The method of reporting chosen by a taxpayer, as provided in Section ___-520, necessitates the following adjustments to gross income for all purposes under this Chapter:

(a) Cash basis - When a person elects to report and pay taxes on a cash basis, gross income for the reporting period shall include:

(1) the total amounts received on "paid in full" transactions, against which are allowed all applicable deductions and exclusions; and

(2) all amounts received on accounts receivable, conditional sales contract, or other similar transactions, against which no deductions and no exclusions from gross income are allowed. Interest on finance contracts may be deducted if separately itemized on all books and records.

(b) Accrual basis - When a person elects to report and pay taxes on an accrual basis, gross income shall include all gross income for the applicable period regardless of whether receipts are for cash, credit, conditional, or partially deferred transactions, and regardless of whether or not any security document or instrument is sold, assigned, or otherwise transferred to another. Persons reporting on the accrual basis may deduct bad debts, provided that:

(1) the amount deducted for the bad debt must be deducted from gross income of the month in which the actual charge-off was made, and only to the extent that such amount was actually charged-off, and also only to the extent that such amount is or was included as taxable gross income; and

(2) if any amount is subsequently collected on such charged-off account, it shall be included in gross income for the month in which it was collected, without deduction for expense of collection.