Cash Method - The cash method of accounting is available for those with consolidated average gross receipts of less than $5,000,000 (including tax-exempt interest income) as computed over the three preceding years. Any partial tax year existing within the three-year look-back period must be annualized for the calculation.
If the parent corporation owns more than 50% of the stock of another corporation, its receipts must also be included in the calculation of average gross receipts. This is often overlooked, with unfortunate consequences.
Accrual Method - Once the three-year average annual gross receipts exceed $5,000,000, a bank previously using the cash method must convert to the accrual method.