When Converting an Income Statement from a Cash Basis to an Accrual

question 108

Multiple Choice

When converting an income statement from a cash basis to an accrual basis, which of the following is incorrect?

• A)An adjustment for depreciation reduces the net income.
• B)An adjustment for bad debts increases the net income.
• C)A reduction in prepaid expenses decreases net income.
• D)An increase in accrued payables decreases net income.

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Definitions:

Lease

A contractual agreement by which one party conveys property, services, or land to another for a specified time, usually in return for a periodic payment.

Domestic Relationships

Interpersonal relationships that are characterized by a significant degree of personal intimacy or commitment, including family relationships and cohabitation.

Binding

The quality of being legally enforceable or imposing duties on the parties involved.

Enforceable Contract

A legal agreement that can be upheld in court, usually because it meets all necessary legal requirements.