Question

mike started a calendar-year business on september 1st of this year by paying 12 months of rent on his shop at $900 per month. what is the maximum amount of rent that mike can deduct this year under each type of accounting method?

Answer 1

By accrual accounting method rent deducted is $3600 and by a cash, method is $10,800.

rent = $900

The maximum rent is determined using a time frame of 12 months.

Calculating both fixed and variable expenses is a part of cost accounting. Monthly expenses known as fixed costs are incurthe red regardless of the volume of production. Rent, depreciation, loan interest, and leasing fees are a few examples.

When a transaction or payment is performed, accountants utilize the accrual accounting method to record revenue and/or expenses. Sales made on credit, purchases made on credit, rent paid, power expenses, depreciation, and audit fees are a few of the more typical examples of accrual accounting.

We know that September to December is the solution because Mike started paying rent on September 1.

Rent  by accrual method

900 divided by 4 using the accrual method

accrual method  = Rent x  time

so 900 x 4 = 3600

now by cash method

rent x time

900 x 12 = 10800

$10,800 in cash is equal to Rent  

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