The Accrual Method I.is Permitted for the Advance Receipt of Rent Income

question 115

Multiple Choice

The accrual method
I.is permitted for the advance receipt of rent income.
II.is never permitted under the deferral method.
III.is permitted for the advance receipt of payments for goods to be delivered within the next tax year if the payment is less than the cost of goods sold and the payment is deferred for financial accounting purposes.
IV.is permitted for the advance receipt of interest income.
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• A)Only statement I is correct.
• B)Only statement III is correct.
• C)Only statements I and II are correct.
• D)Only statements II and III are correct.
• E)Only statements II, III, and IV are correct.

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Definitions:

Income Statement

A financial statement that shows a company's revenue and expenses over a specific period, usually resulting in a net profit or loss.

Retained Earnings

The portion of net earnings not distributed to shareholders as dividends but retained by the company to be reinvested in its core business or to pay debt.

Accounts Payable

Money owed by a company to its creditors or suppliers for goods and services that have been received but not yet paid for.

Debit Entry

An accounting entry that increases an asset or expense account, or decreases a liability, equity, or revenue account.