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:

Financial Statements

Financial statements are formal records of the financial activities and position of a business, person, or other entity, typically comprising the balance sheet, income statement, and cash flow statement.

FIFO

"First In, First Out," an inventory valuation method where goods first received are the first ones sold.

LIFO

"Last In, First Out," an inventory valuation method where the last items added to inventory are the first ones to be used or sold.

Average Cost

This refers to the cost of producing a good or service, calculated by dividing the total costs of production by the number of units produced.