Use the information below to answer the following questions:
Leslie Ltd has found an error in its revenue account: an invoice for $3000 was recorded as revenue in 2011 when it should have been recorded in 2012. The company’s income tax rate is 40% and there was no corresponding error in cost of goods sold.
-What is the effect of the error on 2012 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 revenue recognition does not affect cash flow, as cash flow is based on actual cash transactions, not accounting entries.

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