Case 1

Michael is the owner of all of the shares of a private corporation called Embroidered Shirts Inc. Michael has had a very profitable year and is showing a profit of $350,000. He is aware that he can claim a small business deduction on income that is less than $300,000. So he wants to ensure that his net income is less than $300,000 to best take advantage of this reduction in tax. Michael has decided to delay sending invoices for a jobs completed in December until January. This will put the revenue for these jobs into the following fiscal year. By doing this, Michael can keep his net income under $300,000 and reduce his taxes.

John, the accountant for Embroidered Shirts Inc., is concerned about this scheme.

Which GAAP will guide John in deciding whether invoices can be delayed? Why?