Which type of accounting plan can a sole proprietor use only if the employees of the business are included?

• A. Cash basis accounting
• B. Managerial accounting
• C. Qualified retirement plan
• D. Accrual basis accounting

Answer: (C)

Verified step by step guidance

1. Understand the context of the question: A sole proprietor is a business owner who operates their business individually. The question is asking about a specific type of accounting plan that includes employees.
2. Recognize that the term 'Qualified retirement plan' refers to a retirement savings plan that meets specific requirements set by the IRS and is designed to benefit employees. Sole proprietors can use this plan only if employees are included.
3. Differentiate between the other options provided: 'Cash basis accounting' and 'Accrual basis accounting' are methods of recording financial transactions, not plans specifically tied to employee benefits. 'Managerial accounting' focuses on internal decision-making and is unrelated to retirement plans.
4. Conclude that the correct answer is 'Qualified retirement plan,' as it is the only option that directly involves employees and is specific to retirement benefits.
5. Remember that understanding the purpose and requirements of financial plans, such as qualified retirement plans, is essential for making informed decisions in accounting and business management.