Example Norton uses the cash method of accounting He receive

Example. Norton uses the cash method of accounting. He received a computer from a customer as payment for a $2,500 bill. Can Norton avoid recognizing income because he received payment in noncash form? NO, he received an economic benefit. What if a doctor performed plastic surgery on a lawyer in exchange for the lawyer handling his divorce? Does either have income?

Solution

Cash method of Accounting- It is a method of accounting in which transactions are recorded when the actual cash is paid or received. This is different from Accrual basis accounting.

In the above case, Norton received computer from a customer instead of cash. Norton has to get $2500 as repayment of a bill but he got computer (item) in place of cash so he should definitely record this transaction. This is called \"Payment in Kind\", that refers payment of goods or services in place of cash. Computer must be included on the \"Fair market value\". This is economic benefit and so must be included as income.

Yes, if a doctor performs plastic surgery on a lawyer in exchange for the lawyer handling his divorce, It is an income. This is economic benefit so must be included as Income. Income can be in any form, it can be in cash or non cash form. If the income is in non cash form, it should be recorded at the \"Fair market value\". In this case, doctor and lawyer both have income in return of their services so it must be recorded as income.