A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is inconsistent with generally accepted accounting principles.

Question

Quizplus · Accepted Answer

Generally accepted accounting principles dictate that income should be recognized when earned, regardless of when it is received. The provision in the law described above, therefore, goes against these principles as it requires taxpayers to pay taxes on income before it has been earned.

A Provision in the Law That Compels Accrual Basis Taxpayers