Karen,an accrual basis taxpayer,sold goods in October 2010 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 2011.The note bore interest at the Federal rate.The fair market value of the note at the end of 2010 was $9,000.Karen collected $10,000 from the customer in April 2011.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. Karen earned the $10,000 in 2010 when she sold the goods, so she must recognize the full $10,000 as income in 2010.

Karen,an Accrual Basis Taxpayer,sold Goods in October 2010 for $10,000