Cost of sales and other expenses: Practice Questions

On 1 April 2023, a business paid \(\$3,600\) for a one-year insurance policy. The financial year ends on 31 December 2023. What are the values for the insurance expense and prepaid insurance at the end of the financial year?

According to the accrual basis of accounting, when should expenses be recognized in the financial statements?

A business pays its staff wages on the 5th of every month for the previous month's work. The monthly wages are \(\$5,000\). If the financial year ends on 31 December, which of the following is the correct adjustment to be made?

Which of the following describes the correct accounting treatment for an expense that has been incurred but not yet paid at the end of the financial period according to the matching theory?

Explain how prepaid expenses are presented in the Statement of Financial Position and state the accounting theory that justifies the adjustment for expenses incurred but not yet paid.

Tan & Co is a trading business that sells electronics. For the financial year ended 31 December 2022, the following information is available:

(i) Inventory at 1 January 2022: \(\$42,000\)
(ii) Total purchases of goods for the year: \(\$115,000\)
(iii) Goods returned to suppliers: \(\$3,000\)
(iv) Inventory at 31 December 2022: \(\$38,000\)
(v) Wages and salaries paid: \(\$25,000\)
(vi) Rent expense paid: \(\$12,000\)

Additional information:
- Wages of \(\$2,500\) were still owing to employees as at 31 December 2022.
- Rent of \(\$1,000\) was paid in advance for January 2023.

(a) Calculate the cost of sales for the year ended 31 December 2022.
(b) Calculate the total amount for other expenses (Wages and Salaries, and Rent) to be reported in the Statement of Financial Performance for the year ended 31 December 2022, after applying the accrual basis of accounting.