Question

"On Saturday, June 30, BD Pool Supplies sold merchandise to E. Luang on account. The sales price was $6,400, and the cost of goods sold was $5,300. The sales revenue was recorded immediately, but the entry recording the cost of goods sold was dated Monday, July 2. As a result, net income for June was:"

Answer 1

Answer:

Overstated by $5,300

Explanation:

The concept of accrual accounting states that income are recorded when earned and expenses when incurred in order to accurately match income to related expenses to arrive at the net income.

In the scenario given , the income statement for the month ended June 30 will look like this

                                  Correct                          Erroneous

Sales                         6,400                                 6,400

Cost of goods           5,300                                 -    -

Gross profit               1100                                     6400

Difference = 5300 overstatement of profit

In effect , the net  income for the month ended July 31 will be understated by the same amount as the cost of goods will be overstated by 5300