Question 1:
The owner of a business reviews the income statement prepared by you and asks, "Why do you report a profit of only $30,000 when cash collections of $100,000 were received and cash payments for the period totalled only $50,000 for expenses?" How would you respond to the owner's question?
Question 2
On 31 March, Padbury Publishers received a subscription of $240 for the supply of twelve monthly magazines, beginning in April. At the end of the reporting period, 30 June, the accountant suggested that the owner make an adjusting entry to defer the revenue on nine issues until the next financial year. The owner of the business was reluctant to do so, claiming that he had already received the subscriptions in cash and could see no reason for the delay in recognising the revenue. Do you agree with the owner or the accountant? Respond to the owner, explaining the accountant's position. Ignore GST.