Income Statement
Define Net Sales.
Sales revenue minus sales returns.
Name the three sections.
Operating, Investing, Financing
Purpose of an A/R Record.
Lists every transaction with a single customer with a running balance.
Purpose of an A/P Record.
Lists every transaction with a single supplier with a running balance.
Capital contribution by owner—profit and cash?
No effect on profit; Financing cash inflow
Where does Freight-in go and why?
In Cost of Goods Sold because it brings inventory into a condition/location ready for sale.
Classify GST settlement to the ATO.
Operating cash outflow.
What should the A/R Schedule show?
Each customer’s balance and the total amount owed to the business at period end.
What should the A/P Schedule show?
Each supplier’s balance and the total the business owes at period end.
Credit sale today—profit and cash?
Profit increases now; there is no cash yet.
How does an Inventory loss appear?
Deducted from Gross Profit to get Adjusted Gross Profit.
Paying suppliers for last month’s purchases affects profit this period?
No; it’s only an Operating cash outflow.
Define Discount expense and its effects.
Cost when a customer pays early; decreases A/R and decreases Owner’s Equity (Other expense).
Define Discount revenue and its effects.
Earned by paying early; decreases A/P and increases Owner’s Equity (Other revenue).
Credit purchase of inventory—profit and cash today?
No profit effect until sold; no cash today.
Delivery to customers after sale is recorded as what?
An Other expense (freight-out), not COGS.
Buy office equipment for cash.
Investing cash outflow.
Two strategies to speed up credit collections.
Prompt invoicing/reminders; offer early-payment discounts (others: tighten credit terms, follow-ups, collections).
Give one benefit of paying early and one risk of paying late.
Early: earn discount/improve relationships. Late: risk fees, stop-supply, damaged relationships.
GST received on a cash sale—profit or cash?
Operating cash inflow; no profit effect because GST is not revenue.
Put these in order of subtotals and placement: Net Sales; Cost of Sales; Freight-in; Inventory loss; Discount revenue; Wages.
Net Sales → (Less) COGS (Cost of Sales + Freight-in) = Gross Profit → (Less) Inventory loss = Adjusted GP → (Add) Discount revenue under Other revenue → (Less) Wages under Other expenses → Net Profit.
A mortgage repayment includes interest and principal. Where do they go?
Interest → Operating; principal → Financing.
A customer pays with a settlement discount. What are the ledger impacts?
Bank increases by cash received; Discount expense increases; A/R decreases by the sum of cash + discount.
Explain how timing payments within terms supports liquidity, and one time you’d still pay early.
Paying near due dates preserves cash for other needs; pay early when the discount is worthwhile.
Payment to A/P with discount received—state effects.
Bank decreases (Operating outflow); Discount revenue increases (Other revenue); A/P decreases by cash + discount.