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Computing 481(a) Adjustments

This template computes the amount of the adjustment arising from a change in accounting method under IRC Sec. 481(a). When taxpayers change their accounting method, adjustments must be made to ensure that the change does not result in the omission or duplication of an item of income or expense. These adjustments, referred to asSection 481(a) adjustments, quantify the cumulative effect that the change in method has on taxable income. A “positive” Section 481(a) adjustment increases income, while a “negative” Section 481(a) adjustment decreases income. Section 481(a) adjustments are taken into account over a varying period of time. Refer to the "Tracking 481(a) Adjustments” template.

Entering Information

All of the information needed to produce the calculations is entered on the Input worksheet.  The yellow highlighted cells are calculated fields, and no data should be entered in these cells.  Gray cells are not calculated fields, but data should not be entered in these cells.

Enter the following information as of the close of the tax year preceding the year of the change:

  • Tax year of the change (Enter the four-digit tax year.)
  • Accounts receivable
  • Other accrued income (Enter the description and amount of other income accrued but not received.)
  • Income received or reported before earned
  • Accounts payable
  • Accrued salaries
  • Other accrued expenses (Enter the description and amount of other expenses accrued but not paid.)
  • Prepaid expenses previously deducted
  • Supplies on hand previously deducted
  • Inventory on hand previously deducted
  • Other amounts previously deducted (Enter the description and amount of other amounts previously deducted.)
  • Other amounts (Enter the description and amount of any items that are not accounted for in any of the other categories.)
Computing 481(a) Adjustments