Stannous Company earns $2,000 of revenue on account in Year 1. Cash collections

Question

Stannous Company earns $2,000 of revenue on account in Year 1. Cash collections of receivables amount to $1,800 in Year 1 with the remainder being collected in Year 2. Which of the following shows how these events will affect the company’s financial statements at the time revenue is recognized in Year 1?

a. Option A

b Option B

c Option C

d Option D

Balance sheet Income Statement Statement of
Cash Flows Assets = Liabilities + Equity Rev. - Exp. = Net Inc. A. + = NA + + + - NA = + + OA B. NA = + + + + - NA = + + OA C. + = NA + + + - NA = + NA D. = NA + - NA = + OA

Explanation / Answer

Option A

Because the cash collected $1800 will reflect in the cash flow statement and the outstanding $200 will be shown as receivables under current assets under assets side.

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