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Accounting Method, Payments, and Billing
From its inception through the year in issue, petitioner
kept its books and records and reported its income using the cash
receipts and disbursements method of accounting. Prior to and
including the year in issue, petitioner’s annual gross receipts
did not exceed $5 million. Starting in 1991, petitioner prepared
financial reports using an accrual method of accounting, the
completed contract method. These financial reports were required
by petitioner’s bonding company. (Petitioner was often required
to be bonded for its work.)
Petitioner’s suppliers billed petitioner, not petitioner’s
customers, and petitioner made payment to the suppliers. If
petitioner had the money on hand, petitioner would pay when
billed. If not, petitioner would wait until the money was
available. For some projects, petitioner paid for all materials
before receiving any payment from its customer. Petitioner made
payments for its labor costs on a weekly basis. The schedule on
which petitioner billed and received payment from its
governmental entity customers was regulated by them; there was a
set schedule of payments over which petitioner had little or no
control. The State paid biweekly, whereas other governmental
entities paid monthly. Petitioner normally received payments
based on the amount of the project that was completed. On at
least one occasion during the year in issue, petitioner paid for
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Last modified: May 25, 2011