In which of these cases is the measurement of net income different for cash basis and accrual basis taxpayers that have a calendar year?
a. The computer repair person fixes the Xerox machine on December 31, 2002 but is not paid until 2003.
b. In December, the taxpayer's board of directors declares a $1,000 bonus for its sole shareholder-employee (cash basis, calendar year taxpayer) that is paid in January.
c. The measurement of net income is different in both of these cases.
Your answer is C.
Here is some additional information for you regarding cash and accrual accounting methods.
What is cash basis accounting?
Most small businesses use the cash basis method of accounting, which is based on real-time cash flow. In cash method, you report an expense when it is paid, and record income when it is received. So, the day you receive a check, it becomes a cash receipt. And you record your expenses when you pay your bills, not when the bill is received.
By the way, the word "cash" is not meant literally - it also covers payments by check, credit card, barter, etc.
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