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reading. The amount of utility service that is provided from
meter reading to meter reading is the revenue month usage.
Prior to 1982, petitioner reported income for financial,
regulatory, and tax accounting purposes on the cycle
meter-reading method. Under this method, if the meter-reading
date fell within the current taxable year, the income
attributable to utility services provided on or before the
reading date was included in gross income in that taxable year.
Any utility service provided to customers within the current
taxable year but after the last meter-reading date of such year
was not recognized as income until the following taxable year.
In 1982, petitioner changed its method of accounting for
financial and regulatory accounting purposes from the cycle
meter-reading method to the accrual method of accounting. Under
the accrual method of accounting, the sales price of gas and
electricity consumed after each customer’s last meter-reading
date to December 31 (unbilled period) was recorded as unbilled
revenue. Unbilled revenue consists of two components: (1) Nongas
margin and (2) gas costs of utility services provided to
customers during the unbilled period (unbilled gas costs).
However, on December 31, an adjustment was made to reduce
unbilled revenue by the amount of unbilled gas costs. For tax
purposes, petitioner continued to report taxable income on the
cycle meter-reading method, making adjustments on Schedule M-1 on
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