Use the Information Below to Answer the Following Questions

question 17

Multiple Choice

Use the information below to answer the following questions:
Leslie Ltd has found an error in its revenue account: an invoice for $3000 was recorded as revenue in 2011 when it should have been recorded in 2012. The company’s income tax rate is 40% and there was no corresponding error in cost of goods sold.
-What is the effect of the error on 2012 net profit?

• A) It is $1800 too low.
• B) It is $3000 too low.
• C) It is $1800 too high.
• D) It is $3000 too high.

---

Definitions:

Expenses

The outflow of money to pay for goods or services, an essential component of a company's operations.

Cash Basis

An accounting method where revenues and expenses are recognized only when cash is received or paid, as opposed to the accrual basis.

Revenue Recognition

The accounting principle that governs the conditions under which revenue is recognized in the financial statements, ensuring it is recorded when earned.

Payment

It is the transfer of money or goods from one party to another as a settlement of an obligation.