: This is the first year that Alex file the tax return for his Lawn mowing business. Alex is not sure whether to choose Cash method or Accrual method for his busines, so he asked you to help him with selecting the right method. Alex forwarded you his pretty simple accounting recordings of his business in 2020. What accounting method should Alex select to have the lowest taxable income? Revenue: ? Service revenue = 70k ? Prepaid service revenue = 10k (Client pay 10k in 12/31/2020 for service in 2021) Expenses: ? Employee salary = 12k ? Prepaid expenses = 5k (on 06/31/2020, Alex pay 5k to rent an equipment for 9 months)

Step 1: Create a table as follow and put items into that table Accounting record Amount Cash method Explanation Accrual method Explanation Revenue total 1 8 Service revenue 2 9 Prepaid service 3 10 revenue Expenses total 4 11 Employee salary 5 12 Prepaid expenses 6 13 Net business income 7 14 Explanation points 1) 2) ... 12)