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Abstract

Farmers are allowed to choose between the cash and accrual methods of accounting in reporting income for income tax purposes. In 1969, about 98 percent of farmers used the cash method. However, persons with large nonfarm incomes investing in farm enterprises have used cash accounting to show artificial farm losses for tax purposes. This practice has raised the possibility that the cash accounting option may be restricted or even revoked in the years ahead. This publication discusses the current use of cash and accrual accounting, and the advantages of each. Accounting under the accrual system is explained and inherent difficulties are discussed.

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