When you use the accrual method of accounting, income is counted when the sale occurs not when you receive the money. So the income you received in 2021 that was for 2020, report it in tax year 2020.
Reporting the income when you receive it, is the cash method of accounting.
- The cash method is the more commonly used method of accounting in small business. Under the cash method, income is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.
For additional information, see IRS Publication 538 Accounting Periods and Methods, pages 8-10
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