Chunky Bags Sold Items for $20,000 Cash Using the Cash

question 21

Multiple Choice

Chunky Bags sold items for $20,000 cash using the cash basis of accounting and did not record a sale on account. This transaction should have been recorded under accrual accounting. The income statement defect of the cash basis with respect to this transaction is the failure to record an entry to which account?

• A)Cash
• B)Accounts Receivable
• C)Sales
• D)Both Accounts Receivable and Sales

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Definitions:

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C-corp

A corporation in the United States that is taxed separately from its owners, known as shareholders, under the subchapter C of the Internal Revenue Code.

S-corp

A specific designation for a corporation that allows income, losses, deductions, and credits to be passed through to shareholders for federal tax purposes, avoiding double taxation.

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The financial imposition where income taxes are paid twice on the same source of earned income, often in the context of corporate profits taxed both at the corporate level and again when distributed as dividends.