Leslie Ltd has found an error in its revenue account: an invoice for $3 000 was recorded as revenue in 2018 when it should have been recorded in 2019. The company's income tax rate is 40 per cent and there was no corresponding error in cost of goods sold. What is the effect of the error on 2018 cash from operations?
A) It is $1 200 too high.
B) It is $1 800 too high.
C) It is $3 000 too high.
D) There is no cash effect.

Question

Quizplus · Accepted Answer

The error in recording the invoice as revenue affects the income statement but does not impact the actual cash flow, as the cash from operations is determined by the actual cash received, not by the accounting recognition of revenue.

Leslie Ltd Has Found an Error in Its Revenue Account