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26 January, 08:47

Franco, a consultant, uses the cash method of accounting for his business. Franco recently provided consulting services to his best customer Nicky. When should Franco recognize income from this service? Question 32 options: When Nicky writes a check, made out to Franco. When Franco deposits Nicky's check. When Nicky gives the check to Franco. When Nicky receives an invoice from Franco for the service.

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Answers (2)
  1. 26 January, 08:52
    0
    When Nicky writes a check, made out to Franco.

    Explanation:

    Since Franco, a consultant, uses the cash method of accounting for his business, then Franco should recognize income when he receives payment for the work he has done as opposed to accrual basis which is when the income is earned.

    Cash basis method of recognition would align most likely to when Franco receives his check from Nicky because that is when payment being received, not when the invoice is sent, which aligns more with accrual basis of income recognition.
  2. 26 January, 09:17
    0
    When Nicky gives the check to Franco.

    Explanation:

    A cash basis taxpayer must recognize revenue only after he/she has received the payment, in other words, he/she has been paid. The correct answer should have been: "when Franco receives the check from Nicky", but it's basically the same thing.

    The other options are wrong because Nicky can write a check one day and not give it to Franco in a month or even longer. Once Franco receives the check, he might decide to deposit it or cash it the same day or some other time in the future.
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