The taxpayer performs services with payment due from the customer within 30 days

Question

The taxpayer performs services with payment due from the customer within 30 days. All customers pay within the time limit. What would be the benefit to the taxpayer using the cash method of accounting rather than the accrual method?

Fill in the blank

The taxpayer can ______________ by using the cash method of accounting when the customers or clients pay subsequent to the taxpayer delivering the goods or performing the services.

a. allocate income

b. defer income

c. recognize income

d. reverse income

Explanation / Answer

Q. The taxpayer can ______________  by using the cash method of accounting when the customers or clients pay subsequent to the taxpayer delivering the goods or performing the services.

Answer: b. defer income

Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred.

Under the cash method, include in your gross income all items of income you actually or constructively receive during your tax year.

Thus The taxpayer can defer income by using the cash method of accounting when the customers or clients pay subsequent to the taxpayer delivering the goods or performing the services.

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