U1 AOS2: KK4 - Distinction between cash and profit

Question 1

How could a business record a net profit and a net decrease in cash position?

Answer 1

Cash drawings, a loan repayment, a cash purchase of a NCA, a GST settlement

Question 2

How could a business have an increase in cash position but a decrease in net profit/net loss

Answer 2

Receive a loan, a capital contribution, a GST refund.

Question 3

What is the difference between cash and profit?

Answer 3

Cash and profit are different measures of financial performance.

Cash measures the difference between cash inflows and outflows

Profit measures the difference between revenue and expenses.

Question 4

Revenue is…

Answer 4

An increase in assets or reduction in liabilities that leads to an increase in OE (except for a capital contribution)

Question 5

Items would would be considered a revenue are:

Answer 5

Sales, fees, interest, dividends and rent.

Question 6

Expenses are…

Answer 6

a decrease in assets or increase in liabilities that reduces owner’s equity (except for drawings

Question 7

Examples of items which would be considered to be expenses are:

Answer 7

Wages, advertising, depreciation, cost of materials, utilities.