Question

In: Accounting

In December 2019, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the spring...

In December 2019, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the spring semester of 2020. However, she did not use the funds to pay the tuition until January 2020. Emily can exclude the $2,500 from her gross income in 2019.

a. True

b. False  

Solutions

Expert Solution

False , Emily should not exclude $ 2500 from her gross income in 2019 because she is a cash basis taxpayer so she follows cash basis accounting in which policy is that when cash is received at that time it is recorded in accounts , in same year Or in same accounting year. Emily should record transaction in 2019 received a $ 2500 cash scholarship for the spring semester of 2020 in 2019 .

On other hand there is accrual basis accounting in which we record transactions on accrual basis that is we earn that income but we do not receive that income in cash so that transaction is recorded in the accounts in same period. So Emily do not follow accrual basis accounting.

ekkarill92 answered 2 years ago
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