Donna owns a cleaning service.Reed,a customer,receives Donna's bill for October 2017 services of $65 on October 31,2017.Reed pays the $65 on January 4,2018.
I.If Donna is a cash-basis taxpayer,she recognizes the income in 2018.
II.If Donna is an accrual-basis taxpayer,she will recognize the $65 in 2017.
III.Donna will recognize the $65 in 2017 regardless of accounting method,because that is when she earned the income.

Question

Donna owns a cleaning service.Reed,a customer,receives Donna's bill for October 2017 services of $65 on October 31,2017.Reed pays the $65 on January 4,2018.
I.If Donna is a cash-basis taxpayer,she recognizes the income in 2018.
II.If Donna is an accrual-basis taxpayer,she will recognize the $65 in 2017.
III.Donna will recognize the $65 in 2017 regardless of accounting method,because that is when she earned the income.
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Quizplus · Accepted Answer

A cash-basis taxpayer recognizes income when it is received, so Donna recognizes it in 2018. An accrual-basis taxpayer recognizes income when it is earned, so Donna recognizes it in 2017.

Donna Owns a Cleaning Service