Section EG 2 — Income Tax Act 2007: Adjustment for changes to accounting practice

EG 2 Adjustment for changes to accounting practice When this section applies (1) This section applies in an income year (the year of change ) when a person changes from— (a) a cash accounting method to an accrual accounting method of calculating their income tax liability; or (b) an accrual accounting method to a cash accounting method of calculating their income tax liability. From cash to accrual accounting method (2) If subsection (1)(a) applies,— (a) an amount owed to the person on the last day of the income year before the year of change is income of the person in the year of change; and (b) an amount owed by the person on the last day of the income year before the year of change is allowed as a deduction in the year of change. From accrual to cash accounting method (3) If subsection (1)(b) applies,— (a) an amount equal to the total of all amounts owing by the person in the year of change that have been allowed as a deduction in earlier income years is income of the person in the year of change; and (b) an amount equal to the total of all amounts owing to the person in the year of change that have been treated as income of the person in earlier income years is allowed as a deduction in the year of change. Some definitions (4) In this section,— accrual accounting method means a method of accounting that is regarded as accrual accounting under generally accepted accounting practice cash accounting method means a method of accounting by which the income tax liability of a person is calculated by reference to cash receipts or outgoings. Defined in this Act: accrual accounting method , amount , cash accounting method , deduction , generally accepted accounting practice , income , income tax liability , income year , Compare: 2004 No 35 s EG 2