If a Department Store Fails to Make the Entry to Accrue

question 38

Multiple Choice

If a department store fails to make the entry to accrue the finance charges due from customers

• A) accounts receivable will be overstated.
• B) interest revenue will be understated.
• C) interest expense will be overstated.
• D) interest expense will be understated.

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Definitions:

Indirect Method

The indirect method is a technique used in financial accounting to prepare the cash flow statement, where net income is adjusted for non-cash transactions and changes in working capital to find net cash from operating activities.

Cash Outflows

Money going out of a business for any expense, investment, or payment.

Financing Activities

Transactions involving raising capital and repaying it to owners, including issuing equity, settling loans, and paying dividends.

Common Stock

A form of corporate equity ownership, a type of security representing an ownership interest in a corporation.