Jessica Is a Cash Basis Taxpayer

question 5

True/False

Jessica is a cash basis taxpayer. When Jessica failed to repay a loan, the bank garnished her salary. Each week $60 was withheld from Jessica's salary and paid to the bank. Jessica is required to include the $60 each week in her gross income even though it is the creditor that benefits from the income.

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Definitions:

Credit Sales

Sales where the customer is allowed to pay for the product or service at a later date, extending credit.

Bad Debt Expense

The estimated amount of accounts receivable that is not expected to be collected.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of accounts receivable that may not be collectible, reflecting potential losses due to credit sales.

Uncollectible Receivables

Debts owed to a company that are considered unlikely to be paid by the debtor.