Bars and restaurants generally maintain inventories of perishable goods and, therefore, have been required the use of the accrual method of accounting. For taxable years ending after December 17, 2000, Revenue Procedure 2000-22, 2000-1 CB. 1008, provides that a qualifying small business with average sales of $1 million or less for 3 years may use the cash method of accounting. The Revenue Procedure provides that if a taxpayer does not want to account for inventories, it must treat inventoriable items like non-incidental materials and supplies under Treas. Reg. section 1.162-3. For purposes of the revenue procedure, inventoriable items that are treated as non-incidental materials and supplies are considered consumed and used in the year in which the taxpayers sells the items, or, if later, when the taxpayer pays for the items. An accrual basis taxpayer can elect the cash method after 1999. Form 3115, "Change of Accounting Method" is required to be filed with the return.
