Karen,an accrual basis taxpayer,sold goods in October 2011 for $10,000.The customer was unable to pay cash.So the customer gave Karen a note for $10,000 that was payable in April 2012.The note bore interest at the Federal rate.The fair market value of the note at the end of 2011 was $9,000.Karen collected $10,000 from the customer in April 2012.Under the accrual method:

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Under the accrual method, income is recognized when it is earned, regardless of when it is received. Since Karen sold the goods in 2011, she must recognize the full $10,000 of income in 2011, even though she received a note instead of cash.

Karen,an Accrual Basis Taxpayer,sold Goods in October 2011 for $10,000