Firm Q operates a cash basis consulting business. In October, Firm Q billed a client for $23,400 of consulting services. In November, the client settled the bill by paying $10,000 cash and transferring marketable securities worth $13,400 to Firm Q. Required: How much taxable income does Firm Q recognize on settlement of the bill

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26-05-2022
Business

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Firm Q operates a cash basis consulting business. In October, Firm Q billed a client for $23,400 of consulting services. In November, the client settled the bill by paying $10,000 cash and transferring marketable securities worth $13,400 to Firm Q. Required: How much taxable income does Firm Q recognize on settlement of the bill

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suchetasVT suchetasVT · Answer 1 · 2022-05-30T13:27:02+02:00

Firm Q is a cash basis consulting firm and received only $10,000 cash, but it will recognize the entire $23,400 as the total value of the cash and non-cash payment. The amount billed for the services provided will be taken as taxable income irrespective of how much it is received in cash.

What are cash-basis taxpayer rules?

A taxpayer deducts prices withinside the year they're paid off, which isn't always the year they have been incurred is referred to as cash basis.

The amount billed for the services provided will be taken as taxable income irrespective of how much it is received in cash.

Therefore, the transaction has been completely settled. Firm Q will recognize the entire $23,400 as the total value of the cash and non-cash payment for taxation purposes.

Learn more about cash-basis taxpayer here:

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