What is profit under accrual accounting given the following information? Cash sales $30,000Credit sales $20,000Cash received from accounts receivable $10,000Wages owing at year-end $10,000A. $24,000B. $40,000C. $44,000D. $50,000
Profit = Revenue - ExpensesProfit = $30,000 (cash sales) + $20,000 (credit sales) - $10,000 (wages)Therefore, profit = $40,000B. $40,000
Which of the following about the accounting equation is NOT true? A. Share capital is a part of shareholders' equityB. All payable are liabilities C. Retained profit is an assetD. Inventory is an asset
C. Retained profit is NOT an asset as it comprises shareholders' equity along with share capital.
How is the balance sheet and income statement connected?
The income statement and balance sheet are connected via retained profits. Retained profits are recorded firstly via the income statement which calculates retained profits by calculating revenue and expenses (opening profits + net profits for the period (revenue - expenses) - distributions (dividends). The retained profits contribute to shareholder's equity, which is a component of the balance sheet via the accounting equation.
What identifying information is displayed on a balance sheet?
Name of the reporting entityType of financial information - balance sheetDate - what point in time it refers toCurrency used - $m, $AUD
Classify the following assets as current or non-current:1. Cash and cash equivalents2. Accounts receivable 3. Inventory 4. Prepayments 5. Investments (trading)6. Investments (non-trading)7. Machinery8. Motor vehicles 9. Buildings10. Intangible assets e.g. licenses, goodwill
1. Current2. Current3. Current4. Current5. Current6. Non-current 7. Non-current8. Non-current 9. Non-current10. Non-current
Classify the following liabilities as current or non-current:1. Accounts payable 2. Overdrafts3. Loan: portion due within 12 months4. Loan: portion due after 12 months 5. Taxes payable 6. Dividends payable 7. Wages payable
1. Current 2. Current 3. Current 4. Non-current 5. Current 6. Current 7. Current
What identifying information is displayed on an income statement?
Name of the reporting entityType of financial statement - income statementDate - what period it is prepared forCurrency used - $m, $AUD
Which of the following would not affect shareholders' equity? A. The sale of inventory for a profit B. The sale of share capitalC. The receipt of a telephone bill from OptusD. The payment of an accounts payable
D. The payment of an accounts payable would not affect shareholders equity. This is because accounts payable suggests that an expense has already occurred in the past. The receipt of a telephone bill from Optus indicates the occurrence of an expense and thus does affect profit and shareholders equity.
Which of the following are current liabilities?A. Share capitalB. Long-term loanC. Accounts receivable D. Bank overdraftE. Interest expense F. Interest payable
D and F
Which of the following are current assets?A. Motor vehicles B. InventoryC. EquipmentD. Long-term investments E. PrepaymentsF. Cash at bank
B, E and F
Which transaction represented an expense?A. Purchase a computer for $3000 in cashB. Paid $3300 in settlement of a loanC. Paid $500 for repair work to be performed next year D. Purchased and used $400 of petrol for delivery trucks
D. Purchasing a computer is simply acquiring an asset and so is not an expense. Paying off a loan is simply reducing liability. Paying for repair work to be performed in the future is a prepayment and won't be an expense until the work is carried out. Purchasing and using petrol is an expense because you are supporting the asset, which is the truck. This is similar to paying rent for land.
A company buys 100 bottles of milk for $1 which they sell to their customers for $2 each. The company also incurred $50 of advertising expenses. All purchases and sales were made for cash. Assume the company had $100 of cash and $100 of share capital prior to the transaction.1. What is the profit earned by the company?2. How does this transaction impact on the balance sheet?
1. $Revenue 200COGS (100)Gross Profit 100Advertising Expenses (50)Net Profit 50 2. Buys milk (Dr Inventory $100, Cr Cash $100)Sell milk (Dr Cash $200, Cr Inventory $100, Cr Retained Profit $100)Advertising expense (Dr Retained Profit $50, Cr Cash $50) $Assets Cash 150 Total Assets 150Liabilities 0Shareholders' EquityShare Capital 100Retained profits 50Total Liabilities and Equity 150
A company buys 100 bottles of milk for $1 which they sell to their customers for $2 each. The company also incurred $50 of advertising expenses. All purchases and sales were made on credit. Assume the company had $100 of cash and $100 of share capital prior to the transaction.1. What is the profit earned by the company?2. How does this transaction impact on the balance sheet?
1. $ Revenue 200Cost of Goods Sold (100) Gross Profit 100Operating Expenses Advertising Expenses (50) Total Operating Expenses (50)Net Profit before Tax 50 Tax Expense 0Net Profit 502. Buys milk (Dr Inventory $100, Cr Accounts Payable $100)Sells milk (Dr Accounts Receivable $200, Cr Inventory, Cr Retained Profits $100)Advertising Expense (Dr Retained Profits $50, Cr Accounts Payable $50) $ Current Assets Cash 100Accounts Receivable 200 Total Current Assets 300Non-Current Assets Total Non-Current Assets 0Total Assets 300 Current Liabilities Accounts Payable 100Advertising Payable 50 Total Current Liabilities 150Non-Current Liabilities Total Non-Current Liabilities 0 Total Liabilities 150 Shareholders' Equity Share Capital 100Retained Profit 50 Total Shareholders' Equity 150Total Liabilities & Shareholders' Equity 300
What is the difference between current and non-current assets?
Assets are usually separated into shorter-term ones (current assets) and longer-term ones (noncurrent assets). Current assets are those that are expected to be used, sold, or collected within the next year, and noncurrent assets therefore are expected to have benefits for more than a year into the future.
Suggest two ways retained profits may decrease.
Only two ways retained profits may decrease:The company could have paid a dividend, thereby reducing retained profits.Alternatively, retained profits also decrease when the entity makes a loss.
Explain the following in non-technical language that a business person who has not read this text would understand:Why are dividends to shareholders not considered to be an expense in calculating net profit? Employee wages are considered to be an expense, as is the cost of products delivered to customers, and shareholders must be kept happy, as must employees and customers.
Companies earn profits when their revenues are greater than the expenses incurred in earning those revenues. Dividends are a distribution of profit to shareholders, not an expense of running a business.
Why are inventory and accounts receivable normally current rather than noncurrent assets? When would they be noncurrent assets?
Inventory and accounts receivable are normally current assets, because the inventory is expected to be sold within a year of its purchase, and accounts receivable are expected to be collected within a year. These assets would not be current assets if inventory was not expected to be sold within a year, and accounts receivable is not expected to be collected within a year.
Calculate the total revenue for the month of February 2022, given the following transactions.1. Credit sales of $200 000 made in February; 40 per cent to be collected in February.2. Cash sales of $160 000.3. Received rental revenue of $9000 for the month of February.4. Interest of $12 000 is credited to the company bank statement. It relates to interest earned for the six months from 1 August 2021 to 31 January 2022.5. Received $24 000 as a deposit from a customer for a job to be carried out in March.
Revenue = Profits - Expenses 1. Revenue = $200,0002. Revenue = $160,0003. Revenue = $9,000 (from previous month)4. Nothing 5. Nothing (unearned revenue)Total revenue for February 2022 = $369,000
Calculate the total expenses for the month of February 2022, given the following transactions.1. Paid salaries of $21 000; $6000 related to work carried out in January and $15 000 related to February work.2. Paid commission expenses of $17 000 in February. The commission related to January sales.3. Paid rent for the month of February of $6000 on 9 February.4. Received a bill for $800 from a plumber for repair work done on 25 February. This will be paid next month.5. Purchased a block of land for $700 000 paying cash.
1. Expense = $15,000 2. Nothing (this would be a January expense)3. Expense = $6,0004. Expense = $8005. Nothing (not an expense, simply acquiring an asset)Total Expenses = $21,800
Which of the following is an expense?A. Next month's rentB. Dividends paidC. Purchase of equipmentD. Wages owing but not paid at the end of the accounting period
D.
Which of the following statements about accrual accounting is NOT true? A. The impact of transactions on the financial statements is recognised when the cash is received or paid. B. The financial statements include estimates. C. Judgements made by accountants affect profit. D. Transactions are recognised at the time when revenue and expenses occur.
A.
Which of the following statements about retained profits is TRUE? A. Retained profits is the sum of past net profits/losses minus dividends declared. B. Retained profits indicates the total profits earned by a company since its inception. C. If a company does not pay a dividend, it cannot decrease. D. Retained profits is the current year's profit less dividends paid.
A.
Which of the following statements about a balance sheet is TRUE? A. A balance sheet presents the financial performance of a company for a period of time B. A balance sheet presents the company's financial position at a point in time C. A balance sheet shows which source of finance produced each asset D. A balance sheet shows the profit for the period
B.
What is total revenue for the period in which the following occurs? i. Credit sales are $100 000 of which $30 000 was received at year-end. ii. $10 000 cash was received from customers for work done in the previous year. iii. $15 000 was received from customers for work to be done in the next accounting period.A. $30 000 B. $100 000 C. $111 000 D. $115 000
i. Revenue = $100,000ii. Nothing iii. Nothing (unearned revenue)B.
Which of the following statements is NOT true? A. If total assets decreased by $30 000 during the period and shareholders' equity decreased by $20 000, liabilities decreased by $10 000 for the period. B. If total assets decreased by $50 000 during the period and shareholders' equity decreased by $30 000, liabilities decreased by $80 000 for the period. C. If the total assets owned by a company were $80 000 and shareholders' equity totalled $35 000 for the period, liabilities are $45 000. D. If total assets increased by $45 000 for the period and liabilities decreased by $20 000, shareholders' equity increased by $65 000.
B.
A company buys 100 televisions for $500 each. It sells 60 televisions for $900 each. What is the 'cost of goods sold' expense? A. $24 000 B. $30 000 C. $50 000 D. $54 000
COGS = 60 x $500= $30,000B.
If the last wages bill for the year is paid on 28 June and $8 000 is owing at 30 June in unpaid wages, then: A. the $8 000 would appear as accrued wages payable in the balance sheet but it would not be included in the expenses for the year. B. the $8 000 would appear as accrued wages payable in the balance sheet and would be included in the expenses for the year. C. the $8 000 would not be included in either the balance sheet or the profit and loss statement. D. the $8 000 would appear as an expense in the profit and loss statement.
B.
Given only the following information, calculate net profit. Sales $250 000 Cost of sales $80 000 Wages $60 000 Dividends paid $30 000 Dividends received $30 000 A. $90 000 B. $100 000 C. $110 000 D. $140 000
Net Profit = Gross Profit - Expenses Gross profit = Revenue - COGS Gross Profit = $250,000 + 30,000 - $80,000 = $200,000Expenses = $60,000Net Profit = $140,000D.
The Great Escape Company has just purchased a supply of 80 000 litres of diesel fuel for its buses. The diesel fuel is an expense to the company in the accounting period in which the fuel is: A. ordered from the supplier B. received from the supplier C. paid for to the supplier D. consumed in the running of the buses
D.
During the year, Grasso Ltd sold 2000 items at $30 each. The cost price of the items was $22 each. Operating expenses totalled $7 000 and income tax expense was $5 000. What was the operating profit before tax of Grasso Ltd for the year? A. $4 000 B. $9 000 C. $16 000 D. $20 000
Gross Profit = $60,000 - 44,000 = $16,000Operating Expenses = $7,000Operating Profit before tax = $16,000 - $7,000 = $9,000B.