Question

A company uses accrual-basis accounting. Shortly before the end of the current year, the company earned $1,000 by providing services to a customer but the customer does not pay the company until the following year. Nothing is recorded regarding these events, including year-end adjusting entries. This omission would cause the company’s current year

Answer 1

Answer:

Balance sheet:

Assets (account receivable) is understated by 1,000

Equity(Retained Earnigns)is understated by 1,000

Net Income:

Sales revenue is understated by 1,000

Cash flow: no effect.

Explanation:

as this transaction do not involve cash the cash flow will have no effect.

Now the blanace sheet will have less assets and equity

as the account receivable is understate and the revenues which increase the equity also is understated by 1,000

On the net income statement the sales revenue will not be correct an so, it will be understated as well.