A tax service prepared tax returns for twenty clients at $200 each. By the end of June, the service had collected from eight clients. Under the accrual basis, what amounts will be reported on the income statement and the statement of cash flows for June? Income Statement Statement of Cash Flows

Question

Quizplus · Accepted Answer

Under the accrual basis, revenue is recognized when it is earned, regardless of when payment is received. Therefore, the tax service will report $4,000 ($200 x 20 clients) as revenue on the income statement for June. However, since only $1,600 ($200 x 8 clients) has been collected by the end of June, the statement of cash flows will show $1,600 as the amount of cash received from customers. Therefore, the best choice is A.

A Tax Service Prepared Tax Returns for Twenty Clients at $200