Question

Ethan uses the cash method of acounting and a calendar year. He Recieved the following payments from clients: A check from client #1 in the amount of $1091 on December 26, 2018, deposited January 15, 2019. A check from Client #2 on December 22, 2018, for $592, deposited December 24, 2018. An electronic payment of $1,968 from client #3, made and deposited on January 2, 2019, for services rendered on December 16, 2018. Cash in the amount of $292, received December 9, 2018, from Client #4, which he forgot to deposit until January 12, 2019. When should Ethan report this income?

a. Ethan should apportion the income equally between 2018 and 2019.

b. Ethan should report the income in either 2018 or 2019, whichever minimizes his tax liability.

c. Ethan should report the income in whichever year will allow his client to claim the largest deduction for the expense.

d. Ethan should report $1,975 in 2018. The remaining $1,968 should be reported on his 2019 tax return.

Answer 1

Answer: "d. Ethan should report $1975 in 2018. The remaining $1968 should be reported on his 2019 tax return."

This is because in Cash accounting method, whenever cash is entered in books

the same is considered as Income, so Check received on Dec 26 (for 1091), on Dec 22 (for 592)

Cash received from Client#4 are reported in 2018 being entered in Cash book in 2018.

The electronic payment received on Jan 2 is known to Ethan only on Jan 2 and entered in

Cash book in 2019, so should be reported in 2019.