Publication 538 - Accounting Periods And Methods
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19Publication 538
Contents
(Rev. March 2003)
Cat. No. 15068G
Introduction . . . . . . . . . . . . . . . . . . . . . 1
Department
of the
Accounting
User Fees . . . . . . . . . . . . . . . . . . . . . . 2
Treasury
Accounting Periods
Internal
Calendar Year . . . . . . . . . . . . . . . . . 2
Revenue
Periods and
Fiscal Year . . . . . . . . . . . . . . . . . . . 2
Service
Short Tax Year . . . . . . . . . . . . . . . . 3
Improper Tax Year . . . . . . . . . . . . . . 3
Methods
Change in Tax Year . . . . . . . . . . . . . 4
Partnerships, S Corporations,
and Personal Service
Corporations . . . . . . . . . . . . . . . 4
Corporations . . . . . . . . . . . . . . . . . . 8
Accounting Methods
Cash Method . . . . . . . . . . . . . . . . . . 9
Accrual Method . . . . . . . . . . . . . . . . 10
Inventories . . . . . . . . . . . . . . . . . . . 13
Change in Accounting Method . . . . . . 17
How To Get Tax Help . . . . . . . . . . . . . . 17
Index . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Introduction
Each taxpayer (business or individual) must fig-
ure taxable income on an annual accounting
period called a tax year. The calendar year is the
most common tax year. Other tax years are a
fiscal year and a short tax year.
Each taxpayer must also use a consistent
accounting method, which is a set of rules for
determining how and when to report income and
expenses. The most commonly used account-
ing methods are the cash method and an ac-
crual method. Under the cash method, you
generally report income in the tax year you re-
ceive it and deduct expenses in the tax year you
pay them. Under an accrual method, you gener-
ally report income in the tax year you earn it,
regardless of when payment is received, and
deduct expenses in the tax year you incur them,
regardless of when payment is made.
This publication explains some of the rules
for accounting periods and accounting methods.
In many cases, however, you may have to refer
to the cited sources for a fuller explanation of the
topic. Section references are to the Internal Rev-
enue Code and regulation references are to the
Income Tax Regulations.
This publication is not intended as a guide to
general business and tax accounting rules.
Comments and suggestions. We welcome
your comments about this publication and your
suggestions for future editions.
You can e-mail us while visiting our web site
at
You can write to us at the following address:
Internal Revenue Service
Tax Forms and Publications
W:CAR:MP:FP
1111 Constitution Ave. NW
Washington, DC 20224
We respond to many letters by telephone.
Therefore, it would be helpful if you would in-
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