Upon completing her first year of business as a hairdresser, Sally Potter reports a net profit of £1,740 as shown on the right. However, she has not taken into account three months’ rent as well as £500 salary to her assistant that remain unpaid as at the year-end.

Required:

(a) Prepare a revised Statement of income complying with the accruals concept and

(b) explain why unpaid expenses cannot be ignored.

Transcribed Image Text:

Earnings from hairdressing Rent (£1,000 per month) Assistant's salary Advertising Telephone Net profit £18,500 (£9,000) (£5,500) (£1,800) (£460) £1,740