Sergio purchases $3,000-worth of supplies from a local vendor. The supplies are delivered on April 1, 2018. The supplies are fully used up on December 31, 2018. Because of unusual circumstances, a bill for the supplies arrives from the vendor on February 1, 2019, and is promptly paid. When can Sergio deduct the expenses?
I.In 2018, if he is an accrual basis taxpayer.
II.In 2018, 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, 2018. The supplies are fully used up on December 31, 2018. Because of unusual circumstances, a bill for the supplies arrives from the vendor on February 1, 2019, and is promptly paid. When can Sergio deduct the expenses?
I.In 2018, if he is an accrual basis taxpayer.
II.In 2018, 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

For an accrual basis taxpayer, the expenses can be deducted in the year in which they were incurred, regardless of when they were paid. Since the supplies were fully used up by December 31, 2018, Sergio can deduct the expenses in 2018.

For a cash basis taxpayer, expenses can only be deducted in the year in which they are paid. Since the bill for the supplies was not paid until February 1, 2019, Sergio cannot deduct the expenses in 2018 if he is a cash basis taxpayer.

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