Laine Services, a calendar year taxpayer, billed a client for $8,450 of services on November 30, 2018, and received a check in full payment from the client on January 12, 2019. If Poole is an accrual basis taxpayer, it reports $8,450 taxable income in 2018.

Question

Quizplus · Accepted Answer

As per the accrual basis of accounting, revenue is recognized when it is earned, which is when the services are provided, regardless of when the payment is received. Therefore, Laine Services should report $8,450 of taxable income in 2018, even though the payment was received in 2019.

Laine Services, a Calendar Year Taxpayer, Billed a Client for $8,450