Question

Credit sale of 1000, 100 GST example, cost of sales was 400 (accounting equation):

A. Revenue is $900; Equity increases by $900.
B. Revenue is $1100; Assets increase by $1100.
C. Revenue is $1000; Liabilities increase by $1000.
D. Revenue is $1000; Expenses increase by $400.

Answer 1

The student's question involves a credit sale with GST and the impacts on revenue and the accounting equation. The correct answer is that revenue is $1100 and assets increase by that same amount. Cost of sales is an expense and affects equity, not revenue.

Step-by-step explanation:

The student's question pertains to a transaction involving a credit sale and accounting for revenue, cost of sales, and the effects on the accounting equation. The correct answer to the question is: Revenue is $1100; Assets increase by $1100. This is because revenue includes the goods sold (worth $1000) plus the GST (goods and services tax) collected on the sale (worth $100), totaling $1100. Accordingly, the assets of the company increase by this amount as accounts receivable or cash. The cost of sales, which was $400, represents an expense and reduces the company's equity, but does not change the revenue figure.

Revenue, in the context of accounting profit, is the total amount of money brought in from sales before subtracting any expenses. Subtracting the explicit costs (like cost of sales) from the revenue will give the accounting profit, which in the given example from the student's question does not mention any additional explicit costs besides the cost of sales.