Sergio purchases $3,000-worth of supplies from a local vendor. The supplies are delivered on April 1, 2014. The supplies are fully used up on December 31, 2014. Because of unusual circumstances, a bill for the supplies arrives from the vendor on February 1, 2015, and is promptly paid. When can Sergio deduct the expenses? I. In 2014, if he is an accrual basis taxpayer. II. In 2014, if he is a cash basis taxpayer.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

Question

Quizplus · Accepted Answer

An accrual basis taxpayer can deduct expenses in the year they are incurred, regardless of when they are paid. Since the supplies were used in 2014, Sergio can deduct the expenses in 2014 if he is an accrual basis taxpayer. A cash basis taxpayer can only deduct expenses when they are actually paid, which in this case is 2015.

Sergio Purchases $3,000-Worth of Supplies from a Local Vendor