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.
Credit terms: 5/7, n/14 — What does this mean?
The customer gets a 5% discount if payment is made within 7 days; otherwise, the full amount is due within 14 days.
Why is paying within credit terms important.
Maintains supplier relationships and avoids late fees.
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
Incurred when a customer pays early and receives a discount. Reduces accounts receivable
Define Discount revenue
Earned by paying suppliers early; decreases accounts payable.
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.
In what section would Bad Debts be recorded and why? What is a bad debt.
Other Expenses
A mortgage repayment includes interest and principal. Where do they go?
Interest → Operating; principal → Financing.
A customer pays for goods with a discount. What is the effect on the accounting equation
Bank increases by cash received; Discount expense increases; A/R decreases by the sum of cash + discount.
Explain how timing payments within credit terms supports liquidity
Paying near due dates preserves cash for other needs
Payment to A/P with discount received—state effects.
Bank decreases (Operating outflow); Discount revenue increases (Other revenue); A/P decreases by cash + discount.