Embedded Files
MedFinVentures.org
A fun way to learn and practice entrepreneurial math is to solve riddles. Here are a few good ones.
Riddle: Theft
The first transaction is the theft itself. By stealing $100, the business has experienced an expense for which it gained nothing. Treat the theft as you would any other expense entry.
The second transaction involves the legitimate purchase of the goods. Here, we need to know the cost of the goods sold (COGS) in order to pair it with the revenue earned. Both the expense and revenue will occur at the time of the transaction - neither is deferred.
What is the dollar value of x? X represents the COGS, and can be one of any value between $0 and $70. An x of $0 would mean that you received the inventory for free (lucky you). If x were $70, it means you sold the inventory at cost (in which case, you never would have made a profit). The profit you earn would be $70-x.
Altogether, we have the following abbreviated income statement derived from these 2 events. Your net income is $70-x-100. Depending on what your COGS is, you'd realize a loss from $30 to $100.
Therefore, it would have been wiser for you to have allowed the thief to steal the good itself rather than the cash.
Riddle: Wash sales
In the first transaction, the man purchases the horse (livestock) for $60.
Next, he sells the horse for $70. Selling transactions are generally more complex than buying transactions if there is a discrepancy between the dollar amounts going out and coming into the business. In order for the first sale to occur, two pairs of transactions are needed:
he needs to sell the inventory, and then
he needs to record the inflow of cash
Since he purchased the inventory (livestock) at $60, GAAP rules indicate that he must divest from the inventory at the same price - thus, his cost of goods sold (COGS) is $60. Then, he receives cash in an amount that is different than the COGS: $70. The difference of $10 is the revenue that he earned by selliing the inventory.
In the third transaction, he repurchases the inventory at $80. →
And in the last transaction, he sells the inventory for an amount different than what he last paid for it. ↓
So, let's tally his transactions into an income statement.
He earned $20 in profit.
Page updated
Google Sites
Report abuse