A company purchases $25,000 of inventory in January 20X6, pays for it in March 20X6 and sells them in May 20X6. The accounting period ends on December 31st. Which of the following statements is correct?
A. The statement of cash flows for 20X5 will report an operating cash outflow of $25,000.
B. None of the others alternatives are correct.
C. The 20X6 Statement of Retained Earnings will not be affected by this transaction.
D. The 20X6 income statement will report the $25,000 as cost of goods sold.
E. The company will report accounts payable of $25,000 in 20X5 Balance Sheet.
What Is An Income Statement:
A company's Income Statement is prepared on a periodic basis at the end of every reporting period. The Income Statement shows the amount of revenue earned, the cost of goods sold, the operating expenses incurred and other income during the period.
Answer and Explanation:
The correct answer is D. The 20X6 income statement will report the $25,000 as cost of goods sold.
- This is because the items were sold in 20X6 and the cost of the items that were sold is $25,000, therefore they will be presented on the income statement in such manner.
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from Accounting 101: Financial AccountingChapter 2 / Lesson 2