Assignment Example | Topics and Well Written Essays - 1250 words - 6

Assignment Example The total liabilities amount is $ 8,300 during the same accounting period. The total Capital end is $ 32,810 during the same accounting year (Black, 2009; Crosson, 2009). The balance sheet is based on the accrual basis of accounting. The accrual basis accounting states that the records its revenues or sales during the accounting period they were earned, not on the day they were paid by the customers. Consequently, the sales made to current and future customers on account are debited to Accounts receivable or Notes receivable. In like manner, the Sales or Revenue account is credited. On the other hand, the cash basis accounting records revenues or sales only during the time when the sales amounts are paid by the customers, not when the revenues or sales were earned. Similarly, the accrual basis of accounting records expenses during the accounting period when they are incurred (Nikolai, 2009). ... ted to sell the same products or services, receive payments from customers, pay its creditors, and do other business transactions until the next several years (Nikolai, 2009). Savannah Enterprise Income statements                      Savannah Enterprise       Income Statement       For the year ended December 31, 2012 (thousands)             Sales 75.00       cost of sales       inv beg       Purchases 43.84       Goods for sale 43.84       inv end 1.60 42.24       Gross Profit 32.76       Selling & Admin Expenses       Advertising expense 2.40       Depreciation Expense (Delivery Equipment) 5.00       Depreciation Expense (Computer) 1.00       Utilities expense 4.50       Commission expense 1.50       Miscellaneous expense 4.90       Taxes & Licenses (Business rates) 1.50       Repairs & Maintenance expense 2.80       Postage & Packing expense 0.95 24.55       Net Profit 8.21                      The above income statement is based on the matching concept of accounting. Under the matching concept of accounting, the costs of producing the products shall be deducted during the accounting period when the products were sold or revenues were earned (Nikolai, 2009). Under the matching principle of accounting, the cost of sales amount is deducted from the sales account. Consequently, the cost of sales $ 42,240 is deducted from the $75,000 revenue. The result of the mathematical computation is $ 32,760 gross profit under the matching principle of accounting (Weetman, 2009). In order to arrive at the accounting period’s net profit, the operating expenses are deducted from the gross profit figure. The operating expenses include the marketing expenses and the administration expenses. The marketing expenses include the advertising expense and the commission expense. On the