USA Accrual Income

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What happens when an accrual S Corporation earns $X in Year 1, sends client invoice Year 1 and pays taxes on said accrual income in Year 1. However, S Corporation does not collect the funds in Year 1 or 2 (say company renegotiates contract/invoice), how does S Corporation account for the income recognized in Year 1 but never collected? Thank you in advance.
 

kirby

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You did not specify that S Corp will never ever receive the funds, but if that was the case at some point S Corp would record a write-off of the bad receivable and the income would be reversed in the year of the write off.

If S Corp receives funds after year 2, let's say year 3, then the receivable is cleared in year 3.
 

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