Their books would reflect a debit in accounts receivable of 60000 and credit in

Their books would reflect a debit in accounts

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immediately recognize the revenue earned for all five cars. Their books would reflect a debit in accounts receivable of $60,000 and credit in sales of $60,000. Once the business receives a receipt of payment, their books would reflect a debit in cash and a credit to accounts receivable. Economic Impact The economic impact on the client’s financial situation will vary depending on the type of business entity Bob decides to use for his car business. When forming a business entity, owners not only have to deal with different benefits. But they must deal with business liabilities and personal liabilities as well. For example, in a corporation, it’s separate from its owners and has the right to loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. If Bob forms his business as a pass-through entity such as an S Corporation or partnerships, all owners would be protected by any liabilities and share the business’s gains/losses equally. In addition, by forming an S corporation under 26 U.S.C. § 1366, owners can report the flow- through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. [Fin1]
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Running head:     Revenue Recognition and Accounting Methods             P a g e  |  4 The Cash or Accrual Accounting Method As mentioned previously, I think forming an S Corporation is best for Bob’s business. According to the IRS, S corporations pass income, losses, deductions, and credits through to their shareholders for federal tax purposes. This allows S corporations to avoid double taxation on the corporate income. [IRS8] As an S Corporation, Bob can file his tax returns using both the
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