Franklin Company Began Business in 2008 and Has Consistently Used

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 2010.As a result of an audit by the IRS,Franklin was required to change to the accrual method of accounting beginning with 2011.The accounts receivable and inventory on hand at the end of 2010 are treated as a positive adjustment to income and the accounts payable for inventory at the end of 2010 is a negative adjustment to income.These adjustments result from changing accounting methods and must be included in the 2010 taxable income.