Homework question need help

[Samanthax]

The owner of a business reviews the income statement prepared by you and asks
Why do you report a profit of only $60,000 when the cash collections of $185,000 were received and cash payments for expenses during the period totalled only $80,000

1. How would you respond to the owners question

2. Give two examples which support your answer

Have no idea

 

[Kinlejus]

I would assume that interest payable on loans/overdraft and taxation have reduced firm's profits

Interest on loans will not be paid at once; taxes are accrued aswell

I might be completely wrong, but that is my thinking, looking for other members' thoughts

 

[FrazMan]

id agree with that. There are two main types of income statement, the single step and the multiple step. In the single step there are only 2 groups, revenues and expenses.
In the multiple step, you have: Operating, non-operating, income tax, discontinued ops, extraordinary, other comprehensive income and earnings per share.

Operating covers sales and expenses related to selling goods. So you can pick anything from the other sections which would lower the net income.

ie write off of receivables as someone u sold the goods to went out of business. Write off of inventories due to flooding/fire. loss made from selling part of the business etc.

I hope this helps.