The paper " Income Statement for Billy Bristol" is an outstanding example of a finance and accounting assignment. Billy makes; (25*40*4*6months) $24,000 while in employment while he only makes $5,544 as profits and an equity base of about 6,423 within the same period. This technically means that Billy is better placed working for someone else than engaging in the business. Question 2 The owners should understand that cash reflects the cash balances at any given moment in time and their respective records are maintained at the cash at bank ledger while profits are only reflected within the statement of financial performance and use both revenues and expenses for computation purposes (Marshall, McManus & Viele, 2008).
Furthermore, the owner should understand that not all cash receipts are revenues and also, not all cash payments reflect the expenses of the business for that matter. This is ascertained to the fact that; first, cash statements only involves cash inflows and outflows, which are cash coming and going out of the business at any given moment. Second, it should be comprehended that not all cash, whether coming in or going out reflect revenues or expenses (Marshall, McManus & Viele, 2008).
Third, all of a business revenue base does not necessarily mean cash receipts and all expenses do not necessarily depict payments. Fourth, profits equal revenues fewer expenses while cash balance is only reflected by lessening cash inflow to the cash outflows (Marshall, McManus & Viele, 2008). Question 2(b) A good example of the cash received that are not depicted as revenue for the business is the amount depicted as prepaid revenues, which is revenues that are received in advance.
This is categorized as liabilities and not as revenues. Cash received from the business debtors are cash received but cannot be recognized as revenues because they reflect asset-base (Marshall, McManus & Viele, 2008). Some of the cash payments that cannot be depicted as expenses within the company’ s income statement include loan repayment values that are categorized as liabilities and an amount used to purchase a non-current asset, which is depicted as an asset to the company rather than as an expense item (Marshall, McManus & Viele, 2008). Question 3 Date Details Debit Credit A Cash 6,00 Interest Expense 6,00 B Vehicles Expenses Account 840 Personal Drawings 840 C Cash Account 2,000 Commission expense 2,000 D Sundry Expenses Account 1,300 Office furniture 1,300 E Cash Account 1,350 Rent Account 1,350 F Insurance Fees Accounts 720 Prepaid insurance Account 720 G Repairs and Maintenance Account 11,000 Buildings 11,000 H Buildings 16,000 Depreciation Account 16,000 Office Furniture & Equipment 4,000 Depreciation Account 4,000 Question 3(b) The introduction of interest expense of the amount $600 will cause a decrease in the profit figure of $63,500: ( 63,500-600=$62,900) The personal repairs to Michael’ s motor vehicle will increase the profit figure by $840. The commission amounts amounting $2,000 will reduce the profit figure since they’ d be included within the expenses section of the income statement where they are lessened from gross profits. The incorrect debit of the sundry expenses accounts will be led to an increase in the profit figure by $1,300.
This is because the figure will have to be eliminated from the expenses section of the income statement. Rent from customers that are included when included will result in an increase in the profit figure by the $1,350 since the rental income is treated as revenues for the company. The elimination of the insurance premium and the payment of the annual premium will result in an increase in the profit figure since it will be eliminated from the expenses section of the income statement. The failure to recognize depreciation expenses for the period will not have an influence on the profitability figure given that depreciation is an item that is affected within the balance sheet of a company and not the income statement.
Marshall, DH, McManus, WW& Viele, DF.(2008). Accounting: what the numbers mean 8thEd. McGraw-Hill/Irwin, New York.