Corporate Cash Method Accounting Eligibility

Yes, a corporation can use the cash method of accounting, but only under specific circumstances.

Corporations Eligible for Cash Method:

A C corporation may use the cash method if it meets the gross receipts test, which requires average annual gross receipts not exceeding $31 million for the three prior tax years [1]. Average annual gross receipts are calculated by adding the prior year's gross receipts plus the two preceding years and dividing by three [1].

Special Categories:

Qualified personal service corporations (PSCs) in fields such as health, law, accounting, engineering, architecture, actuarial science, performing arts, or consulting can use the cash method without regard to the gross receipts test, as long as the method clearly reflects income [1]. Similarly, farming C corporations that meet the gross receipts test may use the cash method [1].

Excluded Entities:

A C corporation with average annual gross receipts exceeding the gross receipts test cannot use the cash method and must use the accrual method [2]. Tax shelters are also prohibited from using the cash method [1]. If a corporation previously allowed to use the cash method fails to meet the gross receipts test in the current year, it must change to the accrual method [1].