CBA Tax Planning & Accounting Fundamentals Flashcards

Which accounting method records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged?

Answer: Accrual basis accounting

Accrual accounting matches revenues with the period they are earned and expenses with the period they are incurred, providing a more accurate picture of financial performance.

A C corporation is subject to 'double taxation' because:

Answer: Profits are taxed at the corporate level and again when distributed as dividends to shareholders

C corporations pay corporate income tax on profits, and shareholders pay personal income tax again when those profits are distributed as dividends, creating double taxation.

For federal income tax purposes, an S corporation is best described as a:

Answer: Pass-through entity where income is taxed only at the shareholder level

S corporations are pass-through entities — the corporation itself pays no federal income tax; instead, profits and losses pass through to shareholders who report them on personal returns.

The Section 179 deduction allows businesses to:

Answer: Immediately expense the full cost of qualifying business assets rather than depreciating them over time

Section 179 lets businesses deduct the full purchase price of qualifying equipment and software in the year placed in service, rather than depreciating the cost over multiple years.

Which financial statement shows a company's revenues, expenses, and net income or loss over a specific period?

Answer: Income statement

The income statement (also called the profit and loss statement) summarizes revenues and expenses over a reporting period, resulting in net income or net loss.

Self-employment tax paid by a sole proprietor covers contributions to which two federal programs?

Answer: Social Security and Medicare

Self-employment tax (15.3% on net earnings up to the Social Security wage base) covers both the employee and employer portions of Social Security and Medicare taxes.