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 not be added to Net Income on the income statement but added to Net Income on the statement of cash flows.
D) 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.

Question

Quizplus · Accepted Answer

The sale will be added to Net Income on the income statement as it represents revenue earned by the company. However, since the client has not yet paid for the service, the amount will be deducted from Net Income on the statement of cash flows as it does not represent a cash inflow for the company. This is done to ensure that the statement of cash flows reflects the actual cash flows in and out of the company.

A Printing Company Prints a Brochure for a Client and Then