Question

Larry uses an accrual method of accounting and a calendar year. On December 30, 2016, he completed work for a client and submitted his bill. The client had no dispute with the work done or the amount of the bill. The client paid Larry's bill in 2017. In which year should he report the income from this project? A.) He should report the income in 2017 B.) He may choose to report the income in either 2016 or 2017 C.) He should repor the income in 2016 D.) He should report half of the income in 2016 and half in 2017

Answer 1

Under the accrual method of accounting, revenue is recognized and recorded when goods are supplied or services are rendered, it does not matter when cash is received for such goods or services.

In the given case, Larry completed work and submitted bill to the client on December 31, 2016, for which cash was received in year 2017. Larry should report income from this project in 2016, since the work was completed in the year 2016 it self.

Correct option is C.

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