Mia operates a computer network and support consulting business in which other small businesses hire Mia to assist with technology issues. Mia operates on the cash basis of accounting for tax purposes. Mia provided $10,000 of services to a customer on a credit basis and the customer has run into financial difficulty and can only pay $8,000. As a cash-basis business, Mia does not recognize gross income until the cash is received and so she will recognize $8,000 when paid and will not have a bad debt deduction. If Mia were an accrual-based taxpayer, she would recognize the $10,000 at the time the services were provided. Later, when she was only paid $8,000, the remaining $2,000 would be deducted as bad debt expense.
Mia operates a computer network and support consulting business in which other small businesses hire Mia to assist with technology issues. Mia operates on the cash basis of accounting for tax purposes. Mia provided $10,000 of services to a customer on a credit basis and the customer has run into financial difficulty and can only pay $8,000. As a cash-basis business, Mia does not recognize gross income until the cash is received and so she will recognize $8,000 when paid and will not have a
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