Problem
Lily is a cash method taxpayer who changes to the accrual method in 2016. Lily's income computed under the accrual method for 2016 is $50,000. Her books show the following balances:
| |
12/31/2015
|
12/31/2016
|
|
A/R
|
$20,000
|
$33,500
|
|
A/P
|
$7,500
|
$4,200
|
a. What adjustment is necessary to Lily's income?
b. How should Lily report the adjustment?