Question

Under the cash method, $300 of income was recognized. If the accrual basis was used, when would the income have been recognized?

1) In the current year
2) In the prior year
3) In the subsequent year
4) Cannot be determined

Answer 1

Income under the accrual basis is recognized when earned, not when cash is received. Without knowing when the services or goods were provided, it is impossible to determine when the $300 would have been recognized under the accrual basis.

Step-by-step explanation:

When determining when income is recognized under the accrual basis, we consider the time the income is earned rather than when the cash is received. The accrual basis of accounting records income when it is earned and expenses when they are incurred, regardless of when cash is exchanged. Therefore, if $300 of income was recognized under the cash method, under the accrual method, the income would have been recognized at the time the service was performed or the goods were delivered, which could be in the current year, the prior year, or the subsequent year, depending on the specific circumstances of the transaction.

Without additional information about when the services were provided or the goods were delivered, it is impossible to determine exactly when the income would have been recognized under the accrual basis. Thus, the correct answer is 4) Cannot be determined without additional context.