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Hi John,
I have a question regarding an example in the BPP book F3 regarding incomplete records.
The question summarised:
Camera shop 1JAN2011 $5,000 Inventory; $3,000 Cash.
End of year 31DEC2011 Inventory $6,600; Cash $15,000; Payables $3,000; Capital introduced $5,000 ; Drawings $7,200.I applied the business equation to calculate the profit, but mine was $3,000 more than that of the textbook. I don’t get it why did it deduct the payables 3,000 From inventory and cash as the closing net assets? I thought payables is a liability and it will be b/f to the next period? thanks for your explanation
regards
Net assets = assets minus liabilities.
The fact that the liability is still owing at the beginning of the next period is irrelevant (just as assets are still owned at the beginning of the next period)!The closing net assets are 6,600 + 15,000 – 3,000 = 18,600
The opening net assets = 5,000 + 3,000 = 8,000
Therefore the increase in net assets = 10,600Using the accounting equation:
profit = 10,600 – 5,000 + 7,200 = 12,800I do suggest that you watch our free lectures on this (our lectures are a complete course covering everything you need to be able to pass F3)
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