1 - managing expenses\nyour business pays for the following this month:\n• rent: $100\n• utilities: $30\n•…

1 - managing expenses\nyour business pays for the following this month:\n• rent: $100\n• utilities: $30\n• supplies: $50\nquestions:\n1 what is the total monthly expense?\n2. if your revenue for the month is $500, what is your net income (profit)?\n3. why is it important to separate expenses from revenue in accounting?\n2 - making a business decision\nyou notice that sales of candy are very high, but you are running low on cash. you have two options\n• option a: buy more inventory using cash on hand\n• option b: wait until next week when more cash comes in\nquestions:\n1 which option would you choose and why?\n2 how does your decision affect your inventory and cash balance?\n3 how would you record this in your accounting records?

1 - managing expenses\nyour business pays for the following this month:\n• rent: $100\n• utilities: $30\n• supplies: $50\nquestions:\n1 what is the total monthly expense?\n2. if your revenue for the month is $500, what is your net income (profit)?\n3. why is it important to separate expenses from revenue in accounting?\n2 - making a business decision\nyou notice that sales of candy are very high, but you are running low on cash. you have two options\n• option a: buy more inventory using cash on hand\n• option b: wait until next week when more cash comes in\nquestions:\n1 which option would you choose and why?\n2 how does your decision affect your inventory and cash balance?\n3 how would you record this in your accounting records?

Answer

Explanation:

Step1: Calculate total monthly expense

Add up rent, utilities and supplies: $100 + 30+50$ $= 180$

Step2: Calculate net - income

Net income = Revenue - Expenses. Given revenue is $500$ and expenses are $180$. So, $500−180$ $= 320$

Step3: Explain importance of separating expenses from revenue in accounting

In accounting, separating expenses from revenue provides clarity on a company's financial performance. Revenue shows inflows from business activities, while expenses show outflows. This separation helps in calculating profit accurately, making financial statements more transparent, and aiding in decision - making processes such as cost - control and pricing strategies.

Step4: Choose a business decision option and explain

If sales of candy are high, Option A (Buy more inventory using cash on hand) might be chosen. This is because high sales indicate demand, and buying more inventory now can meet that demand and potentially increase sales and profit further. However, it also risks running out of cash completely if unexpected expenses arise. Option B (Wait until next week when more cash comes in) is safer in terms of maintaining cash reserves but might lead to lost sales opportunities if competitors meet the demand in the meantime. A balanced approach could consider the amount of cash on hand, the expected cash inflow next week, and the level of demand. For simplicity, if we assume the demand is very high and the cash on hand is sufficient to cover basic operations after purchasing inventory, Option A could be chosen.

Step5: Analyze impact on inventory and cash balance

If Option A is chosen, inventory will increase as more candy is purchased. The cash balance will decrease as cash is used to buy the inventory. If Option B is chosen, inventory remains the same in the short - term, and the cash balance will increase next week when more cash comes in.

Step6: Record in accounting records

If Option A is chosen: Debit the Inventory account to increase its value (reflecting the purchase of more inventory) and credit the Cash account to decrease its value (reflecting the cash spent). If Option B is chosen, no entry related to inventory purchase is made immediately. When cash comes in next week, debit the Cash account to increase its value, and when inventory is purchased later, debit the Inventory account and credit the Cash account.

Answer:

  1. The total monthly expense is $$180$.
  2. The net income is $$320$.
  3. Separating expenses from revenue provides clarity on financial performance, helps calculate profit accurately, and aids in decision - making.
  4. Option A could be chosen if demand is high and cash on hand is sufficient as it can meet demand and increase profit, but it risks cash shortage. (Answer may vary depending on assumptions).
  5. If Option A: Inventory increases, cash balance decreases. If Option B: Inventory remains same in short - term, cash balance increases next week.
  6. If Option A: Debit Inventory, Credit Cash. If Option B: When cash comes in, Debit Cash; when inventory is purchased later, Debit Inventory, Credit Cash.