If a Company Incorrectly Records Cash Received for Services to Be

question 61

Multiple Choice

If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and credit to Sales Revenue,how will this error affect net income for the current period?

• A)Net income will be too high.
• B)Net income will be too low.
• C)Net income will not be affected by this error.
• D)Net income will be too high in the following period.

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Definitions:

Accounts Payable

An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors or suppliers.

Taxes Payable

Liabilities due to federal, state, or local tax authorities within the next fiscal year.

Earnings per Share

A measure of a company's profitability, calculated as the net income divided by the number of outstanding shares of its common stock.

Net Income

The total earnings of a company after deducting all expenses, taxes, and costs from its total revenue.