Beth is an accrual basis taxpayer. A renter pays Beth the January 2014 rent in December 2013. What are the tax effects of this transaction? I. Beth will recognize rent income in 2013. II. The wherewithal-to-pay concept requires Beth to recognize the income in 2013.

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Beth, as an accrual basis taxpayer, must recognize income when it is earned or when she has the right to receive it, regardless of when it is actually received. Therefore, she must recognize the rent income in 2013. The wherewithal-to-pay concept supports this by stating that income should be recognized when the taxpayer has the means to pay the tax, which is when the income is received or earned.

Beth Is an Accrual Basis Taxpayer