ICAEW AF · Chapter 1 · Question 10 of 11
In its first year of trading, a business made credit sales of £84,000 and received £76,500 from customers. It paid expenses of £41,000, of which £2,500 relates to the following year. At the year end, expenses of £1,800 for the current year were unpaid. What is the profit for the year on the accrual basis?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) £43,700
Explanation
On the accrual basis, revenue is the sales made in the year, £84,000, regardless of cash received. Expenses = £41,000 paid - £2,500 prepaid + £1,800 accrued = £40,300. Profit = £84,000 - £40,300 = £43,700. The cash surplus of £35,500 (£76,500 - £41,000) would be the result under the cash basis.
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