During the month of June 20x1, employees of Armidale Cleaners (AC) have spent 100 hours cleaning the Large Mart
Store in Armidale. On 30 June 20x1, the Large Mart store manager received a phone call from AC in which AC asked Large Mart to pay $50 for each hour of cleaning. The Large Mart store manager promises to make the payment within the next 14 days.
a) State whether the promise made by the Large Mart store manager creates an asset,
a liability, income, an expense or equity in the 30 June 20x1 financial statements of Large Mart (1 mark)
b) Explain your decision based on the criteria that the conceptual framework uses to define the item that is created by this promise, and describe how each criterion is fulfilled by the outlined situation
a) Pre payment for cleaning serviced would create an Asset. b) Prepayment means the expense is... View the full answer