Anything wrong with this Income statement- school home work?

Question

----------------------- Get IN Shape
---------------------Income Statement
--------------- Month ended october 31,2006
revenue ------------------------------------------ $25000
less: All expenses--------------------------------- 8000
Net income -------------------------------------- $17000
Revenue includes 60 memberships at $300 each, good for one year. The book says there are sever GAAP used improperly in this case. Can anyone tell which One ?
There are double line under $17000, so there is no format error.
I think the GAAP used wrong are principle of conservatism and matching principle, but I'm not sure, should the membership revenue be divid into 12 or should I leave it as is

If anyone knows what's wrong, can u give me some real situation example.

Thank u for ur help

Answer 1

I'm an accountant....The revenue from the 60 memberships at $300 per year need to be recognized, or taken into income, as they are earned, monthly. If the memberships start on 11/01/06, you would recognize no income. If they started on 10/01/06, you would recogize $1,500 in income for the month of October, 2006 ($300 / 12 months = $25 X 60 memberships) It's the matching principle. You have to match your revenues with your expenses.

Answer 2

2

Answer 3

Total Cost of Production MINUS inventory SHOULD EQUAL Cost of Goods Sold.

Net Sales MINUS Cost of Goods Sold SHOULD EQUAL the Gross Profit.

Gross Profit MINUS Selling, General & Administrative Expenses SHOULD EQUAL Operating Income.

Operating Income MINUS Interest Expense PLUS Other Income SHOULD EQUAL Net Income.

Answer 4

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