Question

Guadalupe, Inc. provided $5,000 of services in Year 1 but did not collect cash from its customers until Year 2. Select the correct answer from the following options assuming Guadalupe used accrual accounting.A. The Company will recognize $5,000 of cash flow from operations in Year 1 and $5,000 of revenue in Year 2.B. The Company will recognize $5,000 of revenue and $5,000 of cash flow from operations in Year 1.C. The Company will recognize $5,000 of revenue in Year 1 and $5,000 of cash flow from operations in Year 2.D. The Company will recognize zero revenue in Year 1 and $5,000 of cash flow from operations in Year 2.

Answer 1

Answer:

C. The company will recognize $5000 of revenue in year 1 and $5000 of cash flow from operation in year 2

Explanation:

As, the company is using accrual based accounting, that means that if the services are rendered the company needs to record the revenue regardless of the company is getting cash or not. So, in year 1 the company provided $5000 of services. The company will record $5000 of revenue in its income statement in year 1. But the thing is, company is not getting cash in year 1. Guadalupe is getting cash in year 2. company record the inflow and outflow of cash in cash flow statement when there is actually the cash transaction involved.

Cash inflow in year 2. so, $5000 of cash flow from operation in year 2.