INCOME & EXPENSE CALCULATOR (HBUL)

Exam Tip (Expenses):

EXPENSE = PAYMENTS MADE IS WRONG. The most common mistake is thinking that an expense is simply what a business pays. It's crucial to understand that expenses represent the value of resources used, not just the payments made.

Exam Tip (Key Expense Journal Entries):

Typically, there are four key journal entries for an expense item:

• Prepaid expense or Expense payable to reverse (Beginning of period).
• Cash at bank (in hand) or Trade payable for payments made.
• Income summary transfer for the expense incurred (this is the U value).
• Prepaid expense or Expense payable to adjust (End of period).

Exam Tip (Key Income Journal Entries):

Typically, there are four key journal entries for an income item (Revenue Recognition Theory also applies):

• Income receivable or Income received in advance to reverse (Beginning of period).
• Cash at bank or Cash in hand for amounts collected.
• Income summary transfer for the income earned (this is the U value).
• Income receivable or Income received in advance to adjust (End of period).