Desiree Clark Is A Licensed CPA During The First Month Of Op

Desiree Clark Is A Licensed Cpa During The First Month Of Operations

Desiree Clark is a licensed CPA. During the first month of her business operations, several key transactions and events took place that needed to be recorded to establish accurate financial statements. These included initial investments, hiring, purchases, billing, cash receipts, and payments related to her business activities in May.

The core requirement is to analyze each transaction, determine its impact on the company's financial accounts, and prepare the appropriate journal entries. This process involves understanding the principles of double-entry accounting, including debits and credits, to record transactions properly. Additionally, the analysis should include preparing a preliminary set of financial statements, such as the balance sheet and income statement, based on the recorded data.

Paper For Above instruction

In the first month of her business operations, Desiree Clark, a licensed CPA, experienced a series of financial transactions that required careful recording and analysis to ensure accurate financial reporting. Analyzing these transactions provides insight into the initial financial health of her business and demonstrates the application of fundamental accounting principles.

Initial Investment

On May 1, Desiree Clark invested $20,000 cash into her business. This transaction increases the cash account (an asset) and also increases owner’s equity via a capital account. The journal entry is as follows:

Debit: Cash $20,000
Credit: Owner’s Capital $20,000

This establishes the initial funding of the business, providing the cash necessary for operations and asset recognition.

Hiring and Related Expenses

On May 2, Clark hired a secretary-receptionist at a monthly salary of $2,000. Although this transaction does not involve immediate cash payment, it obligates the business to incur salary expense, which will be paid later. No journal entry is recorded at this moment unless salary accrual is needed at month-end. When paid, the entry will be:

Debit: Salaries Expense $2,000
Credit: Cash $2,000

The hiring process is an operational expense critical to business functioning and will reflect in the income statement as Salaries Expense.

Purchases of Supplies

On May 3, Clark purchased $2,500 of supplies on account from Read Supply Company. This increases supplies (an asset) and accounts payable (a liability). The journal entry is:

Debit: Supplies $2,500
Credit: Accounts Payable $2,500

This transaction shows that the business has acquired supplies but has not yet paid for them, increasing both assets and liabilities.

Payment of Office Rent

On May 7, Clark paid $900 cash for office rent for the month. The payment reduces cash and increases rent expense:

Debit: Rent Expense $900
Credit: Cash $900

Rent expense impacts the income statement and reflects the cost of occupying office space during May.

Billing Clients for Services

On May 11, Clark completed a tax assignment for which she billed the client $3,200. This creates an accounts receivable (asset) and revenue. The entry is:

Debit: Accounts Receivable $3,200
Credit: Service Revenue $3,200

This transaction recognizes revenue earned but not yet received in cash, following accrual accounting principles.

Receiving Advance Payments

On May 12, Clark received a $3,500 advance from a client for management consulting services. This increases cash and creates a liability in the form of unearned revenue:

Debit: Cash $3,500
Credit: Unearned Revenue $3,500

This transaction reflects cash inflow prior to earning the revenue and will be recognized as earned once services are provided.

Collections for Services Completed

On May 17, Clark received $1,200 cash for services completed for C. Desmond Co. This increases cash and recognizes revenue:

Debit: Cash $1,200
Credit: Service Revenue $1,200

Secretary-receptionist’s Salary Payment

On May 31, Clark paid the secretary-receptionist $2,000 salary for the month, decreasing cash and increasing salaries expense:

Debit: Salaries Expense $2,000
Credit: Cash $2,000

Payment of Accounts Payable

Finally, on May 31, Clark paid 60% of the outstanding balance due to Read Supply Company. The total accounts payable was $2,500, so 60% of this amount is $1,500. The payment reduces cash and accounts payable:

Debit: Accounts Payable $1,500
Credit: Cash $1,500

This reduces the liability and cash balance, reflecting the partial payment made towards supplier debts.

Conclusion

These transactions collectively illustrate the fundamental processes of recording business activities, including asset management, liability obligations, revenue recognition, and expense recording. Accurate bookkeeping of these events allows for an accurate presentation of Clark’s financial position and performance at the end of May. Such detailed accounting ensures compliance with GAAP and provides valuable insights for decision-making and financial analysis.

References

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