Jones, Inc., a calendar- year taxpayer, is in the air conditioner repair business. The business uses the cash method. In December of the current year, Jones charged $100 of supplies at Refrigeration, Inc., (he will pay the credit card bill in January) and also purchased $600 of supplies at XYZ on open account (he will make a payment on the open account in January). What is the amount that is deductible by Jones, Inc., in the current year?

Question

Quizplus · Accepted Answer

The cash method of accounting only allows for the deduction of expenses that have been paid in the current year. Since Jones, Inc. has not yet paid for the supplies purchased from Refrigeration, Inc. or XYZ, these expenses are not deductible in the current year. Therefore, the only deductible expense is the $100 of supplies purchased from Refrigeration, Inc.