You work for a firm that operates a small tax business. The firm has a few clients who have asked some tax planning questions that require a little research on the part of you and your colleagues.

Client 1: Ned operates an airplane repair business as a sole proprietorship and uses the cash method. Besides providing repair services, Ned also sells parts and supplies to owners and other repair businesses. The sales of parts and supplies constitute less than $15,000 per year. This is such a small portion of Neds income that he does not keep physical inventories for the parts and supplies.

When must Ned start keeping account for the sales and purchases of supplies on the accrual method? At what level of income received must Ned start keeping a physical inventory of the parts and supplies?