With Respect to the Prepaid Income from Services, Which of the Following

question 5

Multiple Choice

With respect to the prepaid income from services, which of the following is true?

• A)The treatment of prepaid income is the same for tax and financial accounting.
• B)A cash basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
• C)An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed by the end of the tax year following the year of receipt.
• D)An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less.
• E)None of these.

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Definitions:

Checks Written

Financial documents that instruct a bank to pay the specified amount from the drawer's account to the person or entity named on the check.

Deposits In Transit

Funds that have been sent to a bank but not yet recorded by the bank in the company’s account balance.

Outstanding Checks

Checks that have been written and recorded in a company's accounting system but have not yet been cashed or cleared by the bank.

Credit Memo

A document issued by a seller to a buyer, reducing the amount that the buyer owes to the seller under previous invoices.