Income or Expense?
A business sells $2,500 worth of products to customers.
Income
A business receives $500 in cash from a customer.
Cash
A business purchases fertilizer that will be used during the current growing season.
Current
A business pays the same $1,500 rent every month.
Fixed
A business has:
$10,000 income
$6,000 expenses
What is its net income?
NI = $4,000
A business pays $600 for fertilizer.
Expense
A business writes a check to pay its electric bill.
Cash
A business purchases office supplies.
Current
A business spends more on gasoline when it makes more deliveries.
Variable
Two businesses both have $20,000 in income.
Business A has $8,000 in expenses.
Business B has $15,000 in expenses.
Which business has the higher net income?
Business A
A farm receives $3,000 from a government program.
Income
A business owner cleans a neighbor's barn in exchange for using the neighbor's equipment.
Non Cash
A farm purchases a breeding ram expected to be used for several years.
Non Current
A business pays $100 per month for internet service regardless of how many customers it has.
Fixed
A business manager wants to know whether expenses are becoming a larger portion of the business's income.
Would a spreadsheet graph be useful? Explain why.
Yes. A graph can make the relationship between income and expenses easier to see and can help the manager identify trends.
A business pays $1,200 in employee wages. Explain why this is an expense even though the employees are helping the business earn money.
Expense becuase the business is paying money to operate.
A customer receives a product today but agrees to pay the business next month.
Is this transaction cash or non-cash at the time the product is provided?
Non-Cash
A landscaping business purchases a $25,000 commercial mower.
Is this current or noncurrent? Explain.
Noncurrent because the mower is a long-term asset expected to be used for more than one year.
A landscaping business purchases more grass seed when it completes more jobs.
Variable
A business has the following items on it's expense sheet:
Identify which items are current expenses and which is a noncurrent asset.
Current: Fertilizer, Wages, & Advertising
Noncurrent: Tractor
A student says: "Buying a tractor is income because the tractor helps the business make money." Is the student correct? Explain.
No. The tractor is a purchase/asset, not income. It is a long-term piece of equipment used by the business.
A student says: "If no money changes hands, the transaction doesn't need to be recorded." Explain why this isn't necessarily true.
A transaction can have economic value even when cash doesn't change hands. A labor or trade exchange can still need to be recorded.
A business purchases a vehicle for $30,000. The manager says: "It's current because we paid cash for it." What's wrong with this reasoning?
Cash vs. current/noncurrent are different classifications. Paying cash doesn't determine whether something is current or noncurrent. The vehicle is a noncurrent asset because it is a long-term business asset.
A business manager notices that production has doubled, but rent stayed exactly the same.
Fixed
A student is reviewing this business:
New Tractor - $15,000
The manager says: "We had $26,000 in income and $28,500 in expenses, so our business lost money and we should not expand."
What is wrong with the manager's calculation?