Chicago Cleaning Services provides nightly janitorial services at a monthly rate of $300. Customers have three payment options:
If Chicago Cleaning is a cash basis taxpayer:
$\begin{array}{lr}
\text { Month-by-month payments } & \$ 300 \
\text { One year advance payment } & 3,360(\$ 280 \text { per month }) \
\text { Two year advance payment } & 6,480(\$ 270 \text { per month })
\end{array}$

I.All cash payments are taxable when they are received.
II.One-year advance payments may be deferred: $280 would be included in income for each month of service provided.
?

Question

Chicago Cleaning Services provides nightly janitorial services at a monthly rate of $300. Customers have three payment options:
If Chicago Cleaning is a cash basis taxpayer:
$\begin{array}{lr}
\text { Month-by-month payments } & \$ 300 \
\text { One year advance payment } & 3,360(\$ 280 \text { per month }) \
\text { Two year advance payment } & 6,480(\$ 270 \text { per month })
\end{array}$

I.All cash payments are taxable when they are received.
II.One-year advance payments may be deferred: $280 would be included in income for each month of service provided.
?

Quizplus · Accepted Answer

As a cash basis taxpayer, Chicago Cleaning Services must recognize income when cash is received, so all cash payments are taxable upon receipt. Statement II is incorrect because cash basis taxpayers cannot defer income recognition for advance payments.

Chicago Cleaning Services Provides Nightly Janitorial Services at a Monthly