Blue Co., an architectural firm has a bookkeeper who maintains a cash receipts and disbursement journal. At the end of the year they want to convert the cash receipts and disbursement into accrual basis revenues and expenses. Cash receipts are as follows; Cash sales - $150,000 Colections on AR - 450,000 Bank Loan - 90,000 Total 690,000 AR end of yr - 210,000 AR start of yr - 160,000 cash sales include $60,000 of prepayments for services to be provided over the next 36mths.
a. Compute the company's accrual gross income for 2012.
b. Would you recommend Blue to use the cash or accrual basis method?
c. The company does not maintain an allowance for uncollectible accounts. Would you recommend that such allowance be established for tax purposes? EXPLAIN.