A printing company prints a brochure for a client, and then bills them for this service. At the time the printing company's financial disclosure statements are prepared, the client has not yet paid the bill for this service. How will this transaction be recorded?
A)The sale will be added to Net Income on the income statement and retained in Net Income on the statement of cash flows.
B)The sale will be added to Net Income on the income statement but deducted from Net Income on the statement of cash flows.
C)The sale will neither be added to Net Income on the income statement nor used to adjust Net Income on the statement of cash flows.
D)The sale will not be added to Net Income on the income statement but added to Net Income on the statement of cash flows.

Question

Quizplus · Accepted Answer

The sale will be added to Net Income on the income statement because the service has been provided and the revenue has been earned, even though the payment has not been received yet. However, the sale will be deducted from Net Income on the statement of cash flows because the cash has not been received yet and therefore cannot be counted as cash inflow. This is called an accounts receivable, which will be recorded in the balance sheet until the payment is received.

A Printing Company Prints a Brochure for a Client, and Then