Question

Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Manny’s marginal tax rate is 37 percent this year and next year, and that he can earn an after-tax rate of return of 8 percent on his investments. Should Manny send his client the bill in December or January?

Answer 1

Should Manny send his client the bill in December or January?

Send the bill in January because in cash method accounting recognized when payments are made.

In december he recognized only income because is in advance.

Step-by-step explanation:

The cash method of accounting requires that sales be recognized when cash is received from a customer, and that expenses are recognized when payments are made to suppliers.