A business makes a credit sale of Rs. 75,000 and has not yet received the cash. What is the immediate effect on the financial statements?
Correct answer: A. Profit and receivables increase by Rs. 75,000
- A. Profit and receivables increase by Rs. 75,000
- B. Cash and profit increase by Rs. 75,000
- C. Liabilities and cash increase by Rs. 75,000
- D. Profit decreases and receivables increase by Rs. 75,000
Explanation
Under accrual accounting, revenue is recognized when earned rather than when cash is collected. The credit sale increases profit and trade receivables, while cash remains unchanged until collection.
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About Financial Statements
Financial statements present a business's financial performance and position through the income statement, statement of financial position, cash flow statement and changes in equity. Questions involve preparing and interpreting these statements, adjusting entries, depreciation, closing inventory, accrued and prepaid items, and distinguishing profit from cash flow.
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