Use the information below to answer the following questions:
Freda Ltd decided to change its accounting for long service leave in order to accrue expense sooner than had been done previously. The effect on provision for employee entitlements as at the end of 2011 was to increase it by $14 000. By the end of 2009, the liability would go up by $21 000. The company’s income tax rate is 35%.
-What would be the effect of the change on 2012 cash flow from operations?
A) It would be $2450 lower.
B) It would be $4550 lower.
C) It would be $7000 lower.
D) There would be no cash flow effect.

Question

Quizplus · Accepted Answer

The change in accounting for long service leave is an accrual accounting adjustment and does not affect cash flow directly.

Use the Information Below to Answer the Following Questions