Key Takeaways
- All Events Test: right to receive fixed + amount determined.
- Financial Statement Conformity (§451(b)): income recognized no later than AFS.
- Economic Performance: required for expense deduction.
- Payment liabilities (taxes, insurance): deductible when paid.
- Recurring Item Exception: deduct if economic performance within 8.5 months.
- AFS = Applicable Financial Statement (audited, SEC filed).
Last updated: January 2026
Gross Receipts & Income Recognition
Why This Matters for the Exam
Accrual timing is heavily tested. Know the All Events Test, economic performance, and the AFS conformity rule.
Expect at least 3-4 questions on income recognition.
The All Events Test (Income)
| Requirement | Description |
|---|---|
| 1 | Right to receive is fixed |
| 2 | Amount reasonably determinable |
"Right to Receive" Fixed When
| Event | Triggers Recognition |
|---|---|
| Performance complete | Yes |
| Payment is due | Yes |
| Payment received | Yes |
| Earliest | First of any above |
Financial Statement Conformity (§451(b))
| Rule | Description |
|---|---|
| AFS | Applicable Financial Statement |
| Conformity | All Events Test met no later than AFS recognition |
| Effect | If booked as revenue, must report for tax |
Economic Performance (Expenses)
| Liability Type | When Economic Performance Occurs |
|---|---|
| Services to taxpayer | As services provided |
| Property to taxpayer | As property provided |
| Services by taxpayer | As taxpayer incurs costs |
| Payment liabilities | When PAID (taxes, insurance, torts) |
Recurring Item Exception
| Requirement | Description |
|---|---|
| 1 | All Events Test met by year-end |
| 2 | Economic performance within 8.5 months |
| 3 | Item is recurring |
| 4 | Immaterial OR better matching |
Payment Liabilities
| Type | Deductible When |
|---|---|
| Property taxes | When paid |
| Insurance premiums | When paid |
| Tort liabilities | When paid |
| Workers' comp | When paid |
Real-World Scenario
Scenario: Accrual taxpayer receives $5,000 property tax bill Dec 15, 2024. Pays Jan 10, 2025.
- All Events Test: Met Dec 15 (liability fixed).
- Economic Performance: Taxes are "payment liabilities."
- Deductible: 2025 (when paid).
On the Exam
Expect 3-4 questions on recognition, typically:
- Timing Questions: "When is income recognized?"
- Payment Liability Questions: "When are property taxes deductible?"
- AFS Questions: "What is the effect of §451(b)?"
The key is to remember: All Events Test = right fixed + amount known. Payment liabilities (taxes, insurance) = deductible when paid. AFS conformity = book = tax (if book is faster).
Test Your Knowledge
Under All Events Test, income is "fixed" when?
A
B
C
D
Test Your Knowledge
Accrual taxpayer: property tax bill Dec 15, paid Jan 10. Deductible when?
A
B
C
D
Test Your Knowledge
What does §451(b) require for taxpayers with audited financial statements?
A
B
C
D