Question

A client might overstate December 31 accounts receivable balances by dating and recording January transactions in December. Such entries recorded in which journal are most likely to achieve this end?
A- cash receipts
B- payroll
C- purchases
D- sales

Answer 1

Answer: The correct answer is "D- sales".

Explanation: Such entries to exaggerate the balances of accounts receivable as of December 31 are more likely to achieve this end if they are recorded as sales since it can modify the amounts by higher ones and inflate the balances of the accounts receivable on that sale.

Answer 2

Answer:

D) sales

Explanation:

When a company uses a cash basis accounting, it will only record sales and expenses when they are effectively collected or paid. But most companies are not allowed to use cash basis accounting and must use accrual basis accounting.

Accrual accounting recognizes both revenues and expenses in the periods that they actually occur without considering when money is received or paid. If you want to increase your income statement and retained earnings account, you must increase your sales revenue and that results in the temptation for forging sales entries. For example, you have a sales contract to deliver X amount of units in January, a person might record the goods as delivered in December. That would include that sale in the current year, even if the company didn't collect any money yet. The accrual accounting system allows the company to recognize the revenue since the earning process was completed.