Question

Recording Sales, Returns, and Bad Debts

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The following data were selected from the records of Azure Corporation:
Total sales on account: $500,000
Sales returns: $25,000
Estimated bad debts: $15,000

Answer 1

The firm's accounting profit is calculated by subtracting the total expenses (labor, capital, materials) from the sales revenue, resulting in an accounting profit of $50,000.

Step-by-step explanation:

Calculation of Accounting Profit

To calculate a firm's accounting profit, we subtract the explicit costs from the total revenues. In the given scenario, a firm had sales revenue of $1 million last year. The expenses were as follows: $600,000 on labor, $150,000 on capital, and $200,000 on materials. Therefore, the accounting profit is calculated as:

Accounting profit = total revenues minus explicit costs

= $1,000,000 - ($600,000 + $150,000 + $200,000)

= $1,000,000 - $950,000

= $50,000