Switching from Accural to Cost Basis

[Unregistered]

Once you apply to make the switch from Accural to Cost Basis how long does it take before you can implement it? We are a Medical Clinic and want to switch from Accural to Cost Basis.

[Bees Knees]

Do you mean cash basis? It is accrual, or cash basis, not cost basis.

You need IRS approval to change accounting methods. TTB, page 8-21 talks about this change. If you change, there is a Section 481 adjustment that needs to be reported on your return. A negative adjustment is taken into account in the year of change. A positive adjustment is generally spread over 4 years, unless the positive adjustment is less than $25,000, in which case the taxpayer can elect to take it into account all in one year.

[Unregistered]

Cash Basis from Accural

Dear Bees Knees:
Thank you for responding to my concern. How long does it take to get approved by the IRS to make the switch from Accural to Cash Basis? We are a medical group who our accountant put us on Accural but I think we need to be on Cash Basis. Our charges are very high compared to what we actually receive from our insurance carriers. Then our patient payment plans is about $100,000.00 which we may or may not ever actually see. Again, I will follow-up on my end, but appreciate your response, I have decided to change accountants as mine feels strongly about the need for us to be accural. But other practices I talk to are accural. Have a great holiday to you!! (Binghamton, NY)

[Bees Knees]

I don't know how long it takes IRS to respond.

Make sure you qualify for the cash method. C corporations and partnerships with C corporation partners cannot use the cash method if average annual receipts are over $5 million.

[Unregistered]

Thank you so much! We have two corporations, one is a C and the other a S. I will research both of these. You were kind to assist me in my research.
Binghamton, NY

[JoshinNC]

Unregistered, give Bob W a ring

He is on Long Island, and is a very knowledgable member of this board. I'm sure he can help you with this switch, and your other needs.

[BOB W]

Switching..

Your accountant should be setting up an Account called "Allowance for Doubtful Accounts" .This account is a general ledger "contra account" to A/R that reduces your receivables and sales so that you are only reporting sales that are going to be collected. The Contra Account is developed based upon prior collection experience.

Do some research on this and it may solve your problem, not only for this year but prior years also. What adjustments are currently being made for old a/r still not collected?

Bob W.

[Unregistered]

Yikes, now I am in over my head, figures, I will show this to another staff member and see if they can shed some light on all this. We wrote off in a hurry many of our patient balances of people THAT WERE MAKING THEIR PAYMENT PLAN PAYMENTS. Because the CPA said our taxes would be terrible since we were on accural. I am now waiting to find out if this fellow is willing to change us to cash basis. If he is not willing then we will have to get a different CPA. Thank you for your advice. I am in upstate NY. May be looking for a CPA in NY who can deal with two medical practices we have. Both are currently accural, one is a C, one is a S. If there is someone out there that is NY CPA and wants to fax me their information, am I allowed to put my fax number on this message board?