If a Company Incorrectly Records a Payment as an Expense

question 155

Multiple Choice

If a company incorrectly records a payment as an expense instead of an asset,how will this error affect net income in the current period?

• A)Net income will be too low.
• B)Net income will be correct.
• C)Net income will be too high.

---

Definitions:

Intra-entity Transactions

Transactions that take place between two divisions or units within the same company, affecting only internal accounts.

Accrual-based Income

A method of accounting that records revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid.

Tax Rate

The percentage at which an individual or corporation is taxed by the government.

Deferred Income Taxes

Taxes applicable to income that are due in the future periods due to temporary differences between the tax base of assets or liabilities and their carrying amount in the financial statements.