If a company receives $5,000 in December for work completed in January, how is revenue reported on a cash basis in December and January?

If a company receives $5,000 in December for work completed in January, how is revenue reported on a cash basis in December and January?

• A. $5,000 in December and $0 in January
• B. $0 in December and $5,000 in January
• C. $2,500 in both December and January
• D. $5,000 in both December and January

Answer: (A)

In cash basis accounting, revenue is recognized when it is received in cash, regardless of when the related work or service is performed. In this scenario, the company receives $5,000 in December, which means that under cash basis accounting, this amount is recognized as revenue in December. Since the work related to that payment will be completed in January, it does not affect the revenue recognition under cash basis accounting. Therefore, no revenue will be recognized in January related to this transaction. Thus, the correct reporting shows $5,000 in revenue for December and $0 in January, accurately reflecting when cash was received rather than when the work was performed.

In cash basis accounting, revenue is recognized when it is received in cash, regardless of when the related work or service is performed. In this scenario, the company receives $5,000 in December, which means that under cash basis accounting, this amount is recognized as revenue in December.

Since the work related to that payment will be completed in January, it does not affect the revenue recognition under cash basis accounting. Therefore, no revenue will be recognized in January related to this transaction.

Thus, the correct reporting shows $5,000 in revenue for December and $0 in January, accurately reflecting when cash was received rather than when the work was performed.