Ross Company is a corporation providing medical diagnostic services. Ross has used the cash method since inception because its gross receipts did not exceed $25 million. This year its average annual gross receipts for the prior three years crossed the $25 million mark, requiring Ross to change from the cash method to the accrual method (per 448). At the end of its prior year, Ross had accounts receivable of $850,000 and accounts payable of $540,000.

a. Compute and explain the adjustment to taxable income that Ross must make due to the change in accounting method. b. When must Ross include this adjustment in it5 income?