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ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements

During the year Kestrel Co sold goods for $80,000 on credit, received $30,000 in cash from customers for those sales, and received $10,000 from a shareholder as new share capital. What amount is income for the year under the Framework definition?

Income is $80,000. Credit sales increase assets and equity when earned, so the cash collected is irrelevant to income, and the $10,000 share capital is an owner's contribution, which is excluded from the definition of income.

  1. A$120,000
  2. B$110,000
  3. C$80,000Correct
  4. D$40,000

Explanation

Credit sales of $80,000 increase assets (receivables) and equity, so they are income, regardless of cash received. The $30,000 cash collected is just settlement of receivables, and the $10,000 share capital is a contribution from an equity holder, which is excluded. Option B adds in the share capital wrongly; option D uses only a mistaken figure.

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