(a) Cash method v.

Accrual method
- CASH METHOD – recognition of income and expense dependent on inflow or outflow of cash (meaning,
you recognize the income when you actually receive the cash payment for the sale, and you recognize the
expense when you actually pay cash for the expense).
- ACCRUAL METHOD – method under which income, gains and profits are included in gross income when
earned whether received or not, and expenses are allowed as deductions when incurred, although not yet paid.
It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income.
(b) Installment payment v. Deferred payment v. Percentage of completion
- INSTALLMENT METHOD – the taxpayer may report income over the several taxable years in which
collections are made based on the terms of payment.
Generally, the income derived on installment sale is the proportion of installment collection actually received
during the year in relation to the gross profit and contract price.
- DEFERRED PAYMENT METHOD – where the
initial payments on installment sale exceed 25% of the selling price but they may only be realized in the
subsequent year, the taxpayer is allowed to defer reporting income for accounting purposes but such sale is to
be considered as the equivalent of "cash" which will be considered as taxable in the month of sale. [Sec. 177,
RR No. 2 as cited in BIR Ruling No. 263-92 dated September 16, 1992]

- PERCENTAGE OF COMPLETION METHOD – a method of recognizing the earnings derived from

long term construction contracts. This method requires recognition of income based on the progress of work.