If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and credit to Sales Revenue,how will this error affect net income for the current period?
A)Net income will be too high.
B)Net income will be too low.
C)Net income will not be affected by this error.
D)Net income will be too high in the following period.

Question

Quizplus · Accepted Answer

This transaction includes an obligation to provide services in the future.This obligation is a liability called Deferred Revenue.Service Revenue will be reported later,when the services are provided.Because the company recorded the revenue now instead of later,it overstated its revenues and,as a result,overstated its net income.

If a Company Incorrectly Records Cash Received for Services to Be