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With the use of three different examples, explain why cash and profit are not the same thing.

With the use of three different examples, explain why cash and profit are not the same thing.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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With the use of three different examples, explain why cash and profit are not the same thing. Your answer should refer to relevant accounting concepts

● Chippy Ltd - Statements of financial position as at 31 July 2022 2021 £000 £000 ● ASSETS Non-current assets Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity Ordinary share capital Share premium Retained earnings Total equity Non-current liabilities Bank loans Current liabilities Trade payables Tax liabilities Total liabilities Total equity and liabilities 200,388 14,258 11,866 138,897 55,692 365,409 126,081 15,000 179,862 329,943 30,000 30,000 13,116 1,350 14,466 44,466 365,409 183,721 8,196 6,475 74,700 89,371 273,092 83,200 11,000 143,992 238,192 22,000 22,000 11,800 1,100 12,900 34,900 Further information: The total depreciation charge for the year was £12,200,000. Property, plant and equipment with a carrying amount of £900,000 was sold in the year. All sales and purchases were on credit. Other expenses were paid for in cash. A dividend of £9,100,000 was paid during the year. 273,092
Transcribed Image Text:● Chippy Ltd - Statements of financial position as at 31 July 2022 2021 £000 £000 ● ASSETS Non-current assets Property, plant and equipment Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity Ordinary share capital Share premium Retained earnings Total equity Non-current liabilities Bank loans Current liabilities Trade payables Tax liabilities Total liabilities Total equity and liabilities 200,388 14,258 11,866 138,897 55,692 365,409 126,081 15,000 179,862 329,943 30,000 30,000 13,116 1,350 14,466 44,466 365,409 183,721 8,196 6,475 74,700 89,371 273,092 83,200 11,000 143,992 238,192 22,000 22,000 11,800 1,100 12,900 34,900 Further information: The total depreciation charge for the year was £12,200,000. Property, plant and equipment with a carrying amount of £900,000 was sold in the year. All sales and purchases were on credit. Other expenses were paid for in cash. A dividend of £9,100,000 was paid during the year. 273,092
You have been asked to prepare the statement of cash flows for Chippy Ltd for the year ended 31 July 2022. The most recent income statement and statement of financial position (with comparatives for the previous year) of Chippy Ltd are set out below. Chippy Ltd - Income Statement for the year ended 31 July 2022 Revenue Cost of sales Gross profit Profit on disposal of property, plant and equipment Distribution costs Administrative expenses Profit from operations Finance costs Profit before tax Tax Profit for the period 152,500 (68,625) 83,875 125 84,000 (14,678) (18,352) 50,970 (700) 50,270 (1,350) 48,920
Transcribed Image Text:You have been asked to prepare the statement of cash flows for Chippy Ltd for the year ended 31 July 2022. The most recent income statement and statement of financial position (with comparatives for the previous year) of Chippy Ltd are set out below. Chippy Ltd - Income Statement for the year ended 31 July 2022 Revenue Cost of sales Gross profit Profit on disposal of property, plant and equipment Distribution costs Administrative expenses Profit from operations Finance costs Profit before tax Tax Profit for the period 152,500 (68,625) 83,875 125 84,000 (14,678) (18,352) 50,970 (700) 50,270 (1,350) 48,920
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