Using the accrual accounting method, if a contractor completes $12,500 worth of services in June and collects $8,500 in accounts receivable, how much income will the contractor recognize in June?

In the accrual accounting method, income is recognized when it is earned, regardless of when cash is actually collected. Therefore, even though the contractor collected only $8,500 in accounts receivable in June, the key point is that they completed $12,500 worth of services during the month. This amount reflects the true economic activity and effort the contractor put into their work for that period.

Consequently, for June, the contractor recognizes the full $12,500 as income, which accurately represents the revenue earned from the services rendered, independent of the cash flow from collections. This recognition aligns with the principle of matching revenues with the expenses incurred to generate those revenues, thus providing a clearer picture of the contractor's financial performance for that month.