Required information The following nformation apples to the questions disployed

Question

Required information The following nformation apples to the questions disployed below In October of year 0, Janine received a $17,680 payment from a client for 34 months of security services she will provide starting on November 1 of year 0. This amounts to $520 per month. Janine is a calendar-year taxpayer Part 2 of 4 o/0.1 points awarded b. When must Janine recognize the income from the $17680 advance payment for services if she uses the accrual method of accounting? Scored eBook Print References Year 1 and Year 2 Year 2 Year O Year 1 Year O and Year 1

Explanation / Answer

Answer

Provisions:

Cash Method of accounting: Under cash method of accounting revenue will be recognized when cash received and expenses when it is paid, whether related to this year, previous year or future years.

Accrual Method of accounting: Under accrual basis of accounting expenses and revenue both are recognized in the year which it’s relates whether cash are paid or not.

Full Inclusion Method: Under this method for accounting any advance payment received would immediately recognized as taxable income.

11.

Under accrual basis :

Janine must recognize in year 0 =520*2 =$1040 (for 2 month:november and december)

Remaining will be shown as income received in advance in year 1 :

17680-1040 =$16640

12.

Under this case: Year -2

Janine recognize the amount of $17360 in year 2,

when actually inventory were sold and income arises., Because This income relates to year 2.

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