91Ó°ÊÓ

Business entities prepare a statement to ascertain the profit earned by the business entity during the financial year is the income statement. It includes all the income earned and expenses incurred during the year.

Working Note:

$$\begin{gathered} \text{Cash Expenses of Year 2016}=\left(\text{Cash Expenses for Year 2016} \\ +\text{Prepayment of Expenses of Year}2017\right) \\ =\$185,000+\$40,000 \\ =\$225,000 \end{gathered}$$

$$\begin{gathered} \text{Cash Sale of Year 2017}=\left(\text{Cash Received for Sale in Year 2016} \\ +\text{Cash Sale of Year}2017\right) \\ =\$160,000+\$355,000 \\ =\$515,000 \end{gathered}$$

$$\begin{gathered} \text{Cash Expenses of Year 2017}=\left(\text{Cash Expenses Paid for Year 2016} \\ +\text{Cash Expenses of Year}2017 \\ +\text{Prepayment of Expenses of Year 2018}\right) \\ =\$67,000+\$160,000+\$45,000 \\ =\$272,000 \end{gathered}$$

Working Note:

$$\begin{gathered} \text{Sales for Year 2016}=∑\text{Summation of Sales Related to Year 2016} \\ =\$295,000+\$160,000+\$30,000 \\ =\$485,000 \end{gathered}$$

$$\begin{gathered} \text{Expenses for Year 2016}=∑\text{Summation of Expenses Related to Year 2016} \\ =\$185,000+\$67,000+\$25,000 \\ =\$277,000 \end{gathered}$$

$$\begin{gathered} \text{Sales for Year 2017}=∑\text{Summation of Sales Related to Year 2017} \\ =\$355,000+\$90,000 \\ =\$445,000 \end{gathered}$$

$$\begin{gathered} \text{Expenses for Year 2017}=∑\text{Summation of Expenses Related to Year 2017} \\ =\$40,000+\$160,000+\$55,000 \\ =\$255,000 \end{gathered}$$