On March 3, a customer gives you $1800 cash for services not yet performed. At the end of the month, only $600 of services are performed. In preparing the March statement, all $1800 was listed as revenue. What errors would this cause? What principles are involved? What is the effect on the balance sheet and income statement?

Question

On March 3, a customer gives you $1800 cash for services not yet performed. At the end of the month, only $600 of services are performed. In preparing the March statement, all $1800 was listed as revenue. What errors would this cause?  What principles are involved? What is the effect on the balance sheet and income statement?

joe · Answer

Use your knowledge of income statements to fill in the missing items:

Sales
Cost of goods sold $575,000
Gross profit $1,600,000
General and
administrative expense $200,000
Selling and
marketing expense $
Depreciation $50,000
Operating income $
Interest $100,000
Income before taxes $
Income taxes (30%) $
Net Income $700,000