Assume that accrual basis accounting is used.Which of the following errors would most likely lead to an overstatement of net income in the current year?
A)Recording revenue when the cash is collected next year although the performance obligation is satisfied in the current year.
B)Recording an expense when paid next year although it is incurred this year.
C)Failing to adjust the Deferred Revenue account for the portion of rent earned this year.
D)Recording revenue earned in the current year when cash is collected this year.

Question

Quizplus · Accepted Answer

The expense recognition principle states that expenses should be recorded in the same period as the revenues they generate,not necessarily the period in which cash is paid for them.As a result,not recording an expense even though it was incurred this year would understate expenses and overstate net income for the current year.Not recording revenue even though it was earned would understate net income in the current year.Failing to adjust the Deferred Revenue account for the portion earned this year would also understate net income in the current year.Recording revenue earned in the current year would result in correctly stating net income.

Assume That Accrual Basis Accounting Is Used