Question 2

The following is an extract from a letter written to you by Mr Thompson, a retailer, whose final accounts you have recently prepared.

I have examined the accounts you have sent me and I am puzzled about the following:

i) During the year, I used a business cheque to buy a new washing machine for my wife to use at home. Why is this not included on the Balance Sheet?

ii) I cannot understand why the business cash has decreased in spite of the fact that the business has made a profit. Can you explain d? reasons why this may have happened

iii) My friend, John, says that I should keep an eye on my gross profit. What does it means?

iv) My friend, Andy, tells that everything in the world can be measured with money, although I am not so agree with his statement. Based on what concept he illustrates?

v)I bought a van two years ago for $12,000, assuming it would be in use for five yeas and then be worth nothing. Why did the second-hand vehicle be worth nothing and what are possible reasons?

Required:

Comment on each of the five points above. Assume that Mr Thompson has very little accounting knowledge.