Alex is a calendar-year sole proprietor.He began business on December 1,this year.He uses the accrual method of accounting.Alex had the following collections in December: • Collected $7,000 in December,from clients who paid cash for services to be performed next year.
• Collected $5,000 in December,for services performed during December; deposited in an operating account on December 31,this year.
• Collected $12,000 in December; on accounts receivable for services performed in December; deposited in operating account on January 2,next year.
What is the amount Alex must include in his income for December?
A)$7,000
B)$12,000
C)$17,000
D)$24,000

Question

Quizplus · Accepted Answer

Alex must include all collections received during December, regardless of when the services were performed. This includes $7,000 in cash from clients for services to be performed next year, $5,000 for services performed in December and deposited before year-end, and $12,000 on accounts receivable for services performed in December, deposited shortly after year-end. Therefore, his total collections for December are $7,000 + $5,000 + $12,000 = $24,000, but the amount he must include in his income for December is $17,000 ($7,000 + $5,000 + $5,000 received on accounts receivable before year-end).

Alex Is a Calendar-Year Sole Proprietor