A business operating in a field where capital is a material income-producing factor can use the cash method of accounting if the family members contribute vital services to the bus... A business operating in a field where capital is a material income-producing factor can use the cash method of accounting if the family members contribute vital services to the business. A) True B) False Read more

Understand the Problem

The question is asking whether a business can use the cash method of accounting if family members provide essential services to it, indicating a true/false type of scenario regarding accounting methods in business.

More Information

The cash method of accounting is generally not allowable for businesses where capital is a material income-producing factor, even if family members contribute services. This is because such businesses typically must use the accrual method, according to IRS guidelines.

Tips

One common mistake is assuming family involvement can bypass accounting method requirements. It's important to understand that IRS rules are specific on when different accounting methods can be used, particularly related to capital-intensive businesses.

Sources

• Accounting Terminology Guide - The New York State Society of CPAs - nysscpa.org
• Financial Statement Manipulation - Investopedia - investopedia.com