Leslie Ltd has found an error in its revenue account: an invoice for $3000 was recorded as revenue in 2015 when it should have been recorded in 2016.The company's income tax rate is 40 per cent and there was no corresponding error in cost of goods sold.
-What is the effect of the error on 2016 cash from operations?
A) It is $3000 too high.
B) It is $1800 too high.
C) It is $1800 too low.
D) There is no cash effect.

Question

Quizplus · Accepted Answer

The error in recording the invoice in the wrong year affects the timing of revenue recognition but does not impact the actual cash flow from operations. The cash received from the invoice would be the same regardless of the year it was recorded.

Leslie Ltd Has Found an Error in Its Revenue Account