Which of the following income statement accounts most likely has no real cash effect? Income Tax...
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Which of the following income statement accounts most likely has no real cash effect?
Income Tax Expense
Rent Revenue
Pension Expense
Gain on Factoring
Homework Answers
The answer is Option 4 that is Gain on Factoring.
Analysis and Reason:
Income Tax Expense result actual cash outflow through payment of tax liability annually/periodically. So it has real cash effect (cash outflow).
Rent Revenue results cash receipts during the reporting period so it also has real cash effect (Cash Inflow).
Pension Expense is also has real Cash effect via present or future payment ( cash outflow).
But Factoring involves sale of account receivables. In which there is a transfer of right to collect receivables amount and some amount of default risk due. In this case , there is no real cash inflow for gain on factoring and there is no real cash outflow for loss on factoring.
So Option 4 is Correct.
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