Kingman Consulting uses the cash basis of accounting and a fiscal year ending December 31.Beginning on September 1, 2021, Kingman performs services for Renfro International at a rate of $5,000 per month.On February 12, 2022, Renfro pays Kingman $25,000 in full for all services rendered from September 1, 2021 to January 31, 2022.Kingman understated revenues by ________ on its 2021 income statement.
A)$20,000
B)$5,000
C)$25,000
D)$15,000

Question

Quizplus · Accepted Answer

Kingman Consulting uses the cash basis of accounting, meaning revenue is recognized when cash is received. Since Renfro paid $25,000 in February 2022 for services rendered from September 2021 to January 2022, no revenue was recognized in 2021. Therefore, Kingman understated its 2021 revenues by the amount earned in 2021, which is $20,000 (for September to December 2021).

Kingman Consulting Uses the Cash Basis of Accounting and a Fiscal