Ace Goods Enterprise (AGE) is a sports goods retail store located in Hamilton. The sports goods are designed for New Zealand conditions and are popular among local athletes. Jose Gomez started up the store in January 2020 as a sole proprietor. He provides you with the following information for the year ended 31 December 2020:

On 1 January 2020, Jose deposited cash to start up the business	$65,000
On 1 February, a bank loan (repayable over 5-year period) was approved for AGE. The funds have been deposited into the business bank account	$100,000
Cash collected from customers during the year	$295,000
Still owing from customers at the end of the year (to be collected next year)	$36,500
Cash paid for purchase of products to resell in the business	$182,000
Owing for purchase of products at the end of the year (to be paid next year)	$32,000
Cost of unsold products on hand at the end of the year (to be sold next year)	$102,000
Operating Expenses (includes Rent, Wages, Advertising, Telephone & Power) paid	$26,750
Rent owing and unpaid for the year ended 31 December 2020	$1,500
Cash drawings by Jose, the owner	$92,250
Purchase of vehicle on credit on 1 October 2020 and due to be paid in September 2021. The vehicle is to be kept for 5 years, with an expected salvage value of $1,500 at the end of its life.	$48,500
Jose purchases from personal funds a plasma television for AGE staff and customer use.	$2,500
The Cash at Bank balance at 31 December 2020	$159,000

Jose Gomez, who has studied up some accounting at high school, prepares the financial statements using the cash basis. Jose could not remember the accrual basis as he used to skip accounting classes. Jose comes to you for help. [Tax is ignored in this question].

Required:

(1) Show the financial statements using the cash basis. PREPARE the Cash Flow Statement and the Income Statement for the year ended 31 December 2020 and the Balance Sheet as at 31 December 2020 for Ace Goods Enterprise.

(2) Using the financial statements that you prepared in part 1, evaluate the overall performance and position of the business for its first year of operations.

(3) IDENTIFY 5 items that you would have to show in the financial statements if you had been using the accrual basis to prepare these statements. Explain briefly but clearly how each of these items would need to be recorded in the relevant financial statements. Determine the profit that would be recorded under the accrual basis.

(4) Explain to Jose the importance of the qualitative characteristics from the NZ Framework and why it is important that the accrual basis is used because of these qualitative characteristics.