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This question was not in the kaplan book but I was practising some additional questions to develop my understanding of the income statement and I came across this question
Supplies had cash payments of $8600
Supplies on hand on December 31 were $1260
Find the amount that should be recognised in the income statement for the year end December 31st
For this answer I thought the answer would be only $8600 but they had removed 1260 from 8600 (8600-1260)
I was wondering why they have done this because supplies on hand is a current asset and should be recognised in the balance sheet instead with no relevance to the incomestatement
Questions in the exam will not use the word ‘supplies’, they will be called ‘purchases).
The bought goods for $8,600. However since $1,260 are still in inventory at the end of the year they were not used during the year. So the cost of what was used during the year is $6,340 and this is what will appear on the Statement of Profit or Loss (it is no longer called the Income Statement) and the $1,260 will appear in the Statement of Financial Position (it is no longer called the Balance Sheet) as a current asset.
All of this is explained in my free lectures. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Oh yeah thank you professor…i’ve actually watched all your videos and lectures and even had done my FA exam using the help of your videos and passed with an 84% with the help of opentution
It’s just that I’ve forgotten some of the basics now so I’m just revising it again since it’s been a long time i’ve studied the basic concepts
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