Sergio purchases $3,000-worth of supplies from a local vendor.The supplies are delivered on April 1,2017.The supplies are fully used up on December 31,2017.Because of unusual circumstances,a bill for the supplies arrives from the vendor on February 1,2018,and is promptly paid.When can Sergio deduct the expenses?
I.In 2017,if he is an accrual basis taxpayer.
II.In 2017,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

Sergio purchases $3,000-worth of supplies from a local vendor.The supplies are delivered on April 1,2017.The supplies are fully used up on December 31,2017.Because of unusual circumstances,a bill for the supplies arrives from the vendor on February 1,2018,and is promptly paid.When can Sergio deduct the expenses?
I.In 2017,if he is an accrual basis taxpayer.
II.In 2017,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.

Quizplus · Accepted Answer

If Sergio is an accrual basis taxpayer, he can deduct the expenses in 2017 because he received the supplies in 2017. The fact that he paid for them in 2018 doesn't change the fact that the expense was incurred in 2017.

However, if Sergio is a cash basis taxpayer, he can only deduct the expenses in 2018 when he actually paid for them. Therefore, statement II is not correct.

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