Laine Services, a calendar year taxpayer, billed a client for $8,450 of services on November 30, 2013, and received a check in full payment from the client on January 12, 2014. If Poole is an accrual basis taxpayer, it reports $8,450 taxable income in 2013.

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According to the accrual basis of accounting, revenue is recognized when it is earned, regardless of when payment is received. Laine Services billed the client for $8,450 services on November 30, 2013, which means the revenue was earned in 2013 and should be recognized as taxable income for that year. The fact that the payment was received in January 2014 is irrelevant for tax purposes.

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