Accrual vs. Cash Basis of Accounting

PURPOSE: Section 144.021, RSMo, imposes tax on a taxpayer’s gross receipts. This rule explains when a taxpayer reports its gross receipts depending upon whether the taxpayer is using the accrual or cash basis of reporting. (1) In general, a taxpayer should report gross receipts in the period in which payment is actually received. A taxpayer using the accrual basis of accounting may report gross receipts in the period in which the transaction takes place. (2) Application of Tax. (A) A taxpayer should report the gross receipts from its sales in the period in which payment is received. When the taxpayer and purchaser enter into an installment agreement, the taxpayer should report each installment, less any finance charge, as a part of gross receipts in the period in which payment is received. Tax should be calculated at the tax rate in effect at the time of entering the installment agreement. (B) A taxpayer using the accrual basis of accounting may report the gross receipts from its sales in the period in which the transaction is completed, rather than the period in which payment is actually received. When the taxpayer and purchaser enter into an installment agreement and the taxpayer uses the accrual basis of accounting, the taxpayer may report the sale price in gross receipts when the revenue is recognized pursuant to generally accepted accounting principles. Tax should be calculated at the tax rate in effect at the time of entering the installment agreement. (3) Examples. (A) A furniture retailer, a cash basis taxpayer, sells furniture to a customer and agrees to receive payments on the furniture over a period of 1 year with a 5% interest charge on the unpaid balance. Tax is computed only on the sale price of the furniture, not the finance charge. The amount of each payment, less the tax and finance charge, is included in gross receipts in the period each payment is received. An accrual basis taxpayer may include the entire sale price in the gross receipts at the time of the sale. (B) A furniture retailer makes a charge sale to a customer in December 1999, with payment due in March. The local sales tax rate changes effective January 1, 2000. If the retailer is a cash basis taxpayer, it charges tax based on the rate in effect in December and reports the gross receipts when received in March. If the retailer elects to report gross receipts on an accrual basis, it charges tax based on the rate in effect in December and it should report the sale in its December gross receipts. AUTHORITY: section 144.270, RSMo 1994.* Original rule filed Aug. 1, 2000, effective Jan. 30, 2001. *Original authority: 144.270, RSMo 1939, amended 1941, 1943, 1995, 1947, 1955, 1961.