unit 1 test 3

• income statement format

  REVENUE

  cash fees

  credit fees

  or any other transactions (except for accounts payable, GST paid, investing or finance section of cfs)

  
  

  LESS EXPENSES

  list out all transactions from cash payments journal (except for accounts payable, GST paid, investing or finance section of cfs)

  
  

  Net Profit/(Loss)
• Why is wages an expense?

  Wages is an expense because it decreases assets (bank) and owners equity (net profit)
• Cheque butt (when business pays back full amount owing to A/P)

  Top tennis has made a payment to Account Payable - Racquet Warehouse on 28/3 to settle balance owned of 220$
• accounting equation (when business pays back full amount owing to A/P)

  assets: decrease (bank)

  liabilities: decrease (A/P)

  owners equity: no effect
• Accounts Payable (Closing Balance)


  Op. Accounts Payable (found in balance sheet @ start)

  + Credit Purchases INCLUDING GST

  – payments to a/p
• Accounts receivable (closing balance)

  Op. Accounts Receivable (found in balance sheet @ start)

  +credit sale INCLUDING GST

  – receipts from A/R
• Why is receiving the settlement of an A/R not recognised as revenue?

  This is a receipt from accounts receivable, which increases Bank and decreases A/R by the same amount; thus there is no overall effect on Assets and Owner's equity. The revenue was already recognised when earned, i.e when service was provided
• accrual basis


  According to the accrual basis assumption, revenues are recognised in the period earned and compared against expenses incurred in the period to calculate an accurate net profit
• How do accrual basis uphold relevance


  This upholds the relevance since it ensures only information that is capable of making a difference to decision-makings included in reports
• Cash Flow Statement


  Cashflows from operating activities

  Net cashflows from operating activities

  Cashflows from investing activities

  Net cashflows from investing activities

  Cashflows from financing activities

  Net cashflows from financing activities

  Net increase/decrease in cash position

  Add Bank Balance at 1 May

  Closing bank balance at 31 May
• Why is capital contribution not included in the income statement


  The income statement only includes revenues and expenses of a business. Although capital contribution increases both assets and owner's equity, it is expressly excluded because it is not a result of day-to-day trading activities.
• Cleaning supplies 


  According to accrual basis assumption, revenues are recognised when earned and expenses when consumed to calculate an accurate net profit for the period. Thus in the IS, only supplies consumed during the period are recorded as expense.
• cost of materials consumed/used


  Op balance

  +cash purchase CPJ

  -credit purchase PJ

  –supplies used IS

  closing balance for supplies