Jane runs a financial services firm as a sole proprietor filing a Schedule C on her...
Jane runs a financial services firm as a sole proprietor filing a Schedule C on her 1040. Due to a billing error she charged her clients twice in December 2018 in December . One half of the wrongly billed clients paid the extra amount. Which statement is correct?
| Jane is on cash basis, she will only report on her tax return the amounts she received. |
| Jane is on cash basis, she will on her tax return report all the billed clients. |
| Jane is on accrual basis, she will on her tax return report all the billed clients. |
| Jane is on accrual basis, she will on her tax return report only the amounts received. |
Homework Answers
First option is the answer.
Jane is on cash basis, she will only report on her tax return the amounts she received.
Generally, financial services firm use cash basis method for accounting to report income or loss for the year because most of the receipts the firm receives as payment is usually in the next financial year.
Therefore, the first option seems to be correct. Hence, she'll have to report tax on the extra amount received as well.
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