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If a company incorrectly records cash received for services to be provided in the future with a debit to Cash and credit to Sales Revenue, how will this error affect net income for the current period?

A. Net income will be too high in the following period.
B. Net income will be too high.
C. Net income will not be affected by this error.
D. Net income will be too low.

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Answer:

B. Net income will be too high.

Explanation:

Revenue will be overstated instead of liabilities. overstatement in revenue will lead to the higher net income in current period. On the other hand liabilities are overstated. Entry to cash is accurately done and it will not effect due to this error. So the correct option is B. Net income will be too high.

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