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SSC Financial and Cost Accounting P-1 QUESTION #6051
Question 1

A business records a credit sale of Rs. 350 (no cash involved) using accrual accounting. How will this transaction be reflected in the financial statements?

  • Rs. 350 would appear on the balance sheet as a sale
  • Rs. 350 would appear on the income statement as a sale✔️
  • Rs. 350 would appear on the statement of cash flows as a cash outflow
  • The transaction would not be reported since no cash was exchanged
Correct Answer Explanation

Under accrual accounting, revenue is recognized when it is earned, not when cash is received. A credit sale of Rs. 350 means the business has earned the revenue, so it is recorded in the income statement as sales revenue. The receivable (Rs. 350) is recorded on the balance sheet as an asset, but the sale itself appears on the income statement. Cash-basis accounting would delay recognition until cash is received, but accrual accounting does not.