Franklin Company began business in 2008 and has consistently used the cash method to report income from the sale of inventory in income tax returns filed for 2008 through 2011.As a result of an audit by the IRS,Franklin was required to change to the accrual method of accounting beginning with 2012.The net adjustment due to the change is a positive adjustment to income.

Question

Quizplus · Accepted Answer

When switching from the cash method to the accrual method, it is common for there to be a positive adjustment to income. This is because the accrual method requires recognition of revenue when earned, rather than when received, which can increase reported income in the year of the switch.

Franklin Company Began Business in 2008 and Has Consistently Used