Under GAAP, income tax revenues should be recognized in the governmental fund financial statements in the accounting period
A)when collected in cash by the taxing authority.
B)in which the underlying income was earned, regardless of when collected.
C)in which the underlying income was earned, if collected in the current period or soon enough thereafter to pay liabilities of the current period.
D)when earned.

Question

Quizplus · Accepted Answer

GAAP requires that income tax revenues should be recognized in the governmental fund financial statements in the same period as the underlying income was earned, as long as the taxes are collected in the current period or soon enough thereafter to pay liabilities of the current period. This is known as the modified accrual basis of accounting, which recognizes revenues when they become available and measurable, rather than when they are actually received. Therefore, option C is the best choice.

Under GAAP, Income Tax Revenues Should Be Recognized in the Governmental