Brandon is the operator and owner of a cleaning service who uses the cash method of accounting.He receives the following payments on December 31,2013,the last business day of his tax year:
$3,000 -Checks received from customers for services rendered during November and December 2013.The checks are deposited in his bank account on January 4,2014.
$4,000 -Checks received from customers for services to be rendered during 2014.The checks are received in the morning mail and deposited in his bank account on December 31,2013.
$2,400 -A check received from a customer for a service contract.The services under the contract are to be rendered over 24 months,beginning in January 2014.The customer met Brandon at a New Year's Eve party and gives Brandon the check at 11:30 p.m.The check is deposited in his bank account on January 4,2014
How much of the $9,400 collected by Brandon on December 31 must be included in his 2013 gross income?
A)$ 2,400
B)$ 3,000
C)$ 5,400
D)$ 7,000
E)$ 9,400

Question

Quizplus · Accepted Answer

Under the cash method of accounting, income is recognized when it is received. The $3,000 for services rendered in 2013 and the $4,000 for services to be rendered in 2014 are both received in 2013 and must be included in the 2013 gross income, totaling $7,000. The $2,400 for the service contract is for services over 24 months and is not fully recognized in 2013.

Brandon Is the Operator and Owner of a Cleaning Service