Question

Cash for services to be performed in 2017 is received in 2016. Using the accrual basis of accounting, the revenue should appear on:

a) The 2016 income statement
b) The 2017 income statement
c) Both the 2016 and 2017 income statements
d) Neither the 2016 nor 2017 income statement

Answer 1

Under the accrual basis of accounting, revenue for services to be performed in 2017, but paid for in 2016, should be recorded on the 2017 income statement when the service is performed.

Step-by-step explanation:

If cash is received in 2016 for services to be performed in 2017 using the accrual basis of accounting, the revenue should appear on the 2017 income statement. The accrual basis of accounting dictates that revenue should be recognized when earned, not when the cash is received. Since the services are actually being performed in 2017, that is when the revenue is considered earned and should therefore be recorded.