Mia started Mia Way PC in February 2022. It has billed clients $3,500,000 in services and incurred $800,000 in operating expenses at the end of the first calendar year (December 31). Also by the end of the calendar year, her company has collected $2,900,000 of its billings and paid $670,000 of its $800,000 of expenses. Mia anticipates she will collect the remaining outstanding bills and pay her remaining expenses by March 2023. She has adopted a calendar year for federal tax purposes. As I stated earlier, Mia Way may use either the cash method or accrual method of accounting for the first tax return. And we need to determine if using cash method is advantageous and if so, by how much ?

Additional comments: I am trying to understand how to solve for which accounting method is more advantageous?

Answer rating: 100% (QA)

The difference between cash and accrual accounting lies in the timing of when sales and purchases ar... View the full answer