Beth is an accrual basis taxpayer.A renter pays Beth the January 2013 rent in December 2012.What are the tax effects of this transaction?
I.Beth will recognize rent income in 2012.
II.The wherewithal-to-pay concept requires Beth to recognize the income in 2012.

Question

Quizplus · Accepted Answer

Under the accrual basis of accounting, income should be recognized when earned, regardless of when payment is received. Therefore, Beth will recognize the rent income in 2012, even though it was paid in December. The wherewithal-to-pay concept supports this treatment, as the income is considered earned when the renter has the ability to pay (which was in December 2012). Therefore, both statement I and II are correct.

Beth Is an Accrual Basis Taxpayer