On December 31,2011,XYZ Inc.has an account receivable of $2,000 for consulting fees it earned during the year.Consulting revenues are only taxable when collected.XYZ normally receives payment for the services rendered one month after the client is invoiced.Assuming a 20% tax rate,these revenues shall result in:

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Quizplus · Accepted Answer

Since the consulting fees were earned in 2011 but not collected until 2012, XYZ Inc. will have to pay taxes on this income in the year it is collected. Therefore, there will be a deferred tax liability of $2,000 x 20% = $400.