Question

Allison records GPP's revenue and expenses by reviewing the company's monthly bank statement in conjunction with cancelled cheques.

Amounts owed by customers are tracked at the time of delivery on a designated sheet of paper kept by the cash register. As cash is received, the related customer's balance is reduced. On December 31, 20X7, there was a balance of $16,200 still receivable from customers. On December 31, 20X6, there was a balance of $11,505.
When Scott and Allison are in the store, they are the only ones who operate the register. Scott admits that, because he is in too much of a hurry, he sometimes puts the cash in his pocket rather than take the time to ring up the sale. Having cash in hand allows him to pay his babysitter and other personal expenses. Though it was difficult for him to be certain, Scott estimated that transactions worth about $45,000 each year have been handled in this way. Scott confirmed that he has not filed a personal tax return since he started GPP because he has not taken a salary.
The amount of inventory on hand at the end of each year is counted so that Scott can get a clear idea of what he has on hand. Scott determined the value of the inventory on December 31, 20X7 and 20X6, by using the list of what was in the stock room on these dates and applying prices from the most recent supplier price lists.
On December 31, 20X6, GPP had inventory of $8,200, and on December 31, 20X7, the inventory balance was $12,222. This has not been recorded in the financial statements but Scott likes to know for himself
Sales
20X7:$435,575
20X6: $336,667

Answer 1

The correct revenue figure for GPP in 20X7, considering the unrecorded cash transactions, is $480,575.

Step-by-step explanation:

To determine the accurate revenue for GPP in 20X7, we need to account for the unrecorded cash transactions admitted by Scott. Scott estimated that about $45,000 worth of transactions occur each year without being rung up on the register. Therefore, we add this estimated amount to the recorded sales figure for 20X7:

`\[ \text{Recorded Sales 20X7} + \text{Estimated Unrecorded Cash Transactions} \]`

[ = $435,575 + $45,000 ]

[ = $480,575 ]

This adjusted figure reflects the total revenue, considering both recorded and estimated unrecorded cash transactions. Scott's admission of not filing a personal tax return and not taking a salary further underscores the importance of accounting for these unrecorded cash transactions to obtain a more accurate representation of GPP's financial performance.

It's essential for GPP's financial statements to reflect the complete picture of its revenue, especially when cash transactions are involved. This adjustment accounts for the potential understatement of revenue and ensures a more accurate financial portrayal, aiding in better decision-making and financial planning for the business.