A customer provides a deposit of $500 000 near year-end. The product will not be delivered until next year. This transaction will:
A) increase net profit, total assets and cash.
B) increase net profit and cash but not total assets.
C) increase total assets and cash but not net profit.
D) increase cash but not increase net profit or total assets.

Question

Quizplus · Accepted Answer

This transaction increases total assets and cash because the company receives money, but it does not increase net profit since the revenue cannot be recognized until the product is delivered, according to the revenue recognition principle.

A Customer Provides a Deposit of $500 000 near Year-End