Taxpayers bought a tax franchise and set up an S-Corp which used the accrual method of accounting. The IRS held their efin until March which required them to ‘sell’ the franchise back to the franchisor. While they owned the company they generated $115,000 in income of which only $12,000 was collected as the franchisor took the rest claiming they had to in order to file the returns under their efin. Should this income be booked to income and offset with Bad Debt expense? Or should I only show the income they actually collected? I am trying to make sure the books are right so I can file the tax return. Thank you for your help.
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