ACCT1101 - Lecture 1

# And decide to go ahead profit 1900 profit 1900 is

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Unformatted text preview: re e xp e c te d c o s ts a nd a m o u nts s o ld to d e te rm ine if th e y wo u ld p ro c e e d …… The Accounting system provides a model of the business that measures the activities by amount sold and costs: Revenue-Cost=Profit They calculate the Expected Monthly Earnings for Mum’s Biscuits Costs Revenue Sales of merchandise Sales of merchandise inventory inventory \$12 000 \$12 000 C oosst o f f C t o Me rc hhaand is ee s oold Me rc nd is s ld Wa ggeess Wa R eent R nt SSup pplie ss up lie Utilitie ss Utilitie TToota l l ta \$\$ 8 000000 8 11000000 660000 330000 2 0000 2 \$\$1100 1 0000 1 ..and decide to go ahead… Profit \$1900 Profit \$1900 •Is this enough information? •What else would you consider? 23 So they implement their plan with the following results: Mum’s Biscuits Pty Ltd Profit Earned for January Resources created from selling biscuits \$11 400 Resources consumed: Cost of merchandise inventory sold Wages Rent Supplies Utilities Total cost of resources consumed Profit earned \$7600 1000 600 300 200 9700 \$ 1700 They also needed a system to measure actual costs incurred and amounts sold that could be used to determine if goals had been accomplished A more informative report for the owners would be to compare actual and expected performance actual expected Actual Expected Difference S a le s \$11 400 \$12 000 \$ 600 unfavourable ­ Cost of sales (\$7 600) (\$8 000) \$ 400 favourable ­ Wa g e s (\$1 000) (\$1 000) 0 ­ Rent (\$ 600) (\$ 600) 0 ­ Supplies (\$ 300) (\$ 300) 0 ­ Utilities (\$ 200) (\$ 200) 0 Profit \$1 700 \$1 900 \$ 200 unfavourable So what do we know from this accounting information? So A c tua l re s ults d iffe re d fro m th o s e e xp e c te d a nd th a t d e m o ns tra te s th a t th e re is RISK ( uncertainty about an outcome, such as the amount of profit a business will earn) in their business venture.. 25 Is it a good investment? How can we tell? What was the goal? What could be earned in an alternative investment? The purpose of accounting information is to The purpose of accounting informat...
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