Laine Services, a calendar year taxpayer, billed a client for $8,450 of services on November 30, 2012, and received a check in full payment from the client on January 12, 2013. If Poole is an accrual basis taxpayer, it reports $8,450 taxable income in 2012.

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Quizplus · Accepted Answer

Under the accrual basis of accounting, income is recognized when earned, regardless of when payment is received. Laine Services earned the $8,450 of income on November 30, 2012, and therefore must recognize it as taxable income for the 2012 tax year, even if payment was not received until 2013.

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