Larry uses an accrual method of accounting and a calendar year. On December 30,

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 report the income in 2016.

d) He should report half of the income in 2016 and half in 2017.

Explanation / Answer

Ans c) He should report the income in 2016.

In Accrual Method , Revenue is recognised when both the following conditions are satisfied:

1. Revenue is earned

2. Revenue is realized or Realizable

Revenue is earned when products are delievered or services are provided.

Realizable means that it is reasonable to expect cash will be received in the near future.

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