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Generally, you can use the cash method, an accrual method, or any other method permitted by the Internal Revenue Code. In all cases, the method used must clearly reflect income. Unless you are a small business taxpayer (defined later under Part III ), you must use an accrual method for sales and purchases of inventory items. Special rules apply to long-term contracts (see section 460 for details).

If you use the cash method, show all items of taxable income actually or constructively received during the year (in cash, property, or services). Income is constructively received when it is credited to your account or made available to you without restriction. Also, show amounts actually paid during the year for deductible expenses. However, if the payment of an expenditure creates an asset having a useful life that extends beyond 12 months or the end of the next tax year, it may not be deductible or may be deductible only in part for the year of the payment. See chapter 2 of Pub. 334 , Tax Guide for Small Business.

For amounts includible in income and deductible as expense under an accrual method, see Pub. 538 .

To change your accounting method, you must generally file Form 3115. You may also have to make an adjustment to prevent amounts of income or expense from being duplicated or omitted. This is called a section 481(a) adjustment.

Example. You change to the cash method of accounting and choose to account for inventoriable items in the same manner as nonincidental materials and supplies for the 2025 tax year. You accrued sales in 2024 for which you received payment in 2025. You must report those sales in both years as a result of changing your accounting method and must make a section 481(a) adjustment to prevent duplication of income.

A net negative section 481 adjustment is generally taken into account in the year of change. A net positive section 481(a) adjustment is generally taken into account over a period of 4 years. Include any net positive section 481(a) adjustments on

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line 6. If the net section 481(a) adjustment is negative, report it in Part V.

More information. For more information about changing your accounting method and the section 481(a) adjustment, see the Instructions for Form 3115. Additional information is also available in various revenue procedures. See Revenue Procedure 2025-23 (and any subsequent revenue procedures modifying Revenue Procedure 2025-23) for a list of automatic changes, including a description of its effect on prior lists of automatic changes. Revenue Procedure 2025-23 is available at IRS.gov/irb/2025-24_IRB#REV-PROC-2025-23 .