Question

On December 29, 2020, an employee received a $5,000 check from her employer's client. The check was payable to the employer. The employee did not remit the funds to the employer until December 30, 2020. The employer deposited the check on December 31, 2020, but the bank did not credit the employer's bank account until January 2, 2021. Complete the statement below regarding when the cash basis employer is required to include the $5,000 in gross income. In because a check received considered a cash equivalent and a cash basis taxpayer must recognize the income when the check is .

Answer 1

Answer:

In 2020 because a check received IS considered a cash equivalent and a cash basis taxpayer must recognize the income when the check is RECEIVED.

Explanation:

Checks are basically cash, that is why you record a cash disbursement once you issue a check, not when the check is cashed. Once a check has been issued or received, a cash transaction has been made. A cash basis taxpayer must record revenue when it collects it, and collecting a check is equivalent to collecting cash.