On December 31, 2012, Flamingo, Inc., a calendar year, accrual method C corporation, accrues a bonus of $50,000 to its president (a cash basis taxpayer), who owns 75% of the corporation's outstanding stock. The $50,000 bonus is paid to the president on February 1, 2013. For Flamingo's 2012 Form 1120, the $50,000 bonus will be a subtraction item on Schedule M-1.

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The $50,000 bonus is an accrual item for Flamingo, Inc. in 2012, but since it is paid to the president (a cash basis taxpayer) in 2013, it will not be a subtraction item on Schedule M-1 for Flamingo's 2012 Form 1120. Instead, it will be reported as a deduction on Flamingo's 2013 Form 1120 when the bonus is paid.