U2, AOS 2 - Lesson 10 - Income Statement

Question 1

Structure of the income statement is…

Answer 1

Question 2

Purpose of the income statement is…

Answer 2

To calculate Net Profit

Question 3

If expenses increase, owners equity =

Answer 3

Decrease

Question 4

T/f - An income statement reports both cash and credit sales.

Answer 4

True

Question 5

Impact on the accounting equation of a sales return. Customer purchased for $400 (excl. GST) - inventory cost the business $200.

Answer 5

Assets: Accounts Receivable decrease $440, Inventory increase by $200

Liabs: GST Payable decrease $40

OE: Sales Return increase by $400, Cost of Sales decrease by $200 therefore Net Profit will decrease by $200

Question 6

T/f - Sales returns are reported on the Income Statement

Answer 6

True - reported on the income statement. Net revenue decreases and Cost of sales decrease = net profit decreases.

Question 7

Impact on the accounting equation of $330 (inc. GST) Accounts Receivable turning into a bad debt.

Answer 7

Assets: Accounts Receivable decrease by $330

Liabilities: GST Payable decrease by $30

Owner’s equity: Bad debts expense increase by $300 therefore net profit decrease by $300