If the company failed to recognize the discount on non-interest-bearing notes receivable (unearned interest income credit), meaning the note was recorded at face, how would it affect the financial statements? a. the income statement won't be erroneous while the balance will be overstated b. at the end of the year of issuance, the income statement will be understated while the balance sheet will be overstated c. the income statement will be understated while the balance sheet will not be erroneous d. the statement of changes in equity will not affected by this error
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At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
If the company failed to recognize the discount on non-interest-bearing notes receivable (unearned interest income credit), meaning the note was recorded at face, how would it affect the financial statements?
a. the income statement won't be erroneous while the balance will be overstated
b. at the end of the year of issuance, the income statement will be understated while the balance sheet will be overstated
c. the income statement will be understated while the balance sheet will not be erroneous
d. the statement of changes in equity will not affected by this error
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