Ella is a cash- basis sole proprietor providing senior care services to clients. One of her clients passes away owing her $1,500 for services performed. Ella has been notified that there are no assets in the estate to pay her bill. Ella will be able to recognize a business bad debt.

Question

Quizplus · Accepted Answer

Under the cash basis accounting method, income is only recognized when it is received. Since Ella did not receive the $1,500, it was never recognized as income, and therefore, she cannot claim it as a business bad debt.

Ella Is a Cash- Basis Sole Proprietor Providing Senior Care