Question

City Auto Company reported a net income of $180000. The accountant of the company missed to record the following transactions:

Credit Sales: $18000

Cost of Goods Sold: $12000

Prepaid expense expired: $4000

Unearned revenue was earned: $3000

Cash receipts on accounts receivables: $5000

1- which financial statements were impacted by the missing transactions and why?

2- what is the adjusted net income?

Answer 1

1. Cash flow statement and Income statement will be impacted by the missing transactions.

Credit sales, cost of goods sold, prepaid expenses expire and unearned revenue will impact the income statement since credit sales will increase the Revenue, cost of goods sold will decrease the income, prepaid expenses expired will increase the cost, unearned revenue recognition will increase the revenue.

Cash flow statement will be impacted by cost of goods sold, unearned revenue, cash receipts on account receivable since these three impact the cash flow of the company.

2. Adjusted net income = 180000 + 18000 - 12000 - 4000 + 3000

= 185000