Milestone Final Project 650 - ADF Accounting LLC Recommendations for Mr Jones in Regards to his Used Car Business[Author name ADF Accounting LLC Memo To

Milestone Final Project 650 - ADF Accounting LLC...

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[Author name]ADF Accounting LLCRecommendations for Mr. Jones in Regards to his Used Car Business
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ADF Accounting LLCMemoTo:Bob Jones From:Cathy Doanecc:Thomas BadleyDate:Re:Recommendations in Regards to the Used Car BusinessMr. Jones is inquiring as to what type of business entity he should establish with his new venture of a used car dealership. Based on research, we have determined that it would be best for Mr. Jones to set up an LLC and elect to be an S-Corporation to be taxed as a corporation. He we need to file for an EIN number with the IRS, which can be done online at the following website: -for-an-employer-identification-number-ein-online. He will also need tofile form 2553 with the IRS, electing to be an S-Corporation.Mr. Jones is also inquiring as to which accounting procedure he shouldincorporate in his used car business venture. In the process of1
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explaining the different methods to him, we will also recommendwhich method would be best for him to use in the new business.There are two main methods for a small business to use to account forrevenue and expenses. These two methods are described as cash andaccrual methods. Under the cash method, according to IRS Publication 334, business’must include in the gross income, every item of income that is actuallyor constructively received during the tax year. Expenses in turn arededucted in the tax year you actually pay for them. You may have tocapitalize certain costs and may not be able to deduct payments thatare paid in advance.Under the accrual method you would generally include in the grossincome, all amounts for the tax year where all events that fix your rightto receive income have occurred and you can determine these amountswith reasonable accuracy. In regards to expenses, under the accrualmethod, you will generally deduct or capitalize expenses when both ofthe following apply:1.The all-events test has been met. This test has been met when:a. All events have occurred that fix the fact of liability, and b. The liability can be determined with a reasonable accuracy.2
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2. Economic performance has occurred. Since Mr. Jones wants to open a used car dealership, there will beinventories involved, in the respect to the cars being sold. Since thesale of the merchandise, the cars, will be an income producing factorin his business, he must take inventories into account at the beginning
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