M1 Assignment Module 1: Bill Smith Opened Smith Co

M1 Assignmentmodule 1 Assignment: Bill Smith opened Smith Construction

Analyze and record the financial transactions of Smith Construction for May 2010, updating the accounting equation accordingly. Prepare the income statement for May, the statement of retained earnings, and the balance sheet as of May 31, 2010.

Paper For Above instruction

Smith Construction, founded by Bill Smith on April 1, 2010, encountered various financial transactions throughout May 2010. Its financial health and performance are summarized through the accurate recording of these transactions, leading to the preparation of essential financial statements: the income statement, statement of retained earnings, and balance sheet. This detailed accounting process underscores the importance of systematic record-keeping for small businesses in maintaining financial clarity and transparency.

Initially, Smith Construction’s balance sheet as of April 30, 2010, indicated assets and liabilities totaling $42,640, reflecting the early investment and operational activities. The opening balances included cash, accounts receivable, supplies, and equipment, alongside liabilities in accounts payable and stockholders’ equity through common stock. Throughout May, various transactions impacted these accounts, requiring diligent adjustments to accurately reflect the company's financial position at month-end.

Recording May Transactions in the Accounting Equation

The core of accounting involves maintaining the equation Assets = Liabilities + Stockholders’ Equity. Each transaction influences one or more components of this equation. The following detailed analysis demonstrates the effect of each transaction:

• May 1: Smith received $10,000 as inheritance, used solely for purchasing stock. This increased cash (asset) by $10,000 and increased common stock (equity) by $10,000.
• May 7: Payment of accounts payable decreased cash and liabilities. Assuming accounts payable was $5,100, paying this amount reduced both cash and accounts payable accordingly.
• May 15: Replacement of windows for a client earned revenue of $5,000, increasing cash and service revenue, ultimately increasing retained earnings.
• May 17: Collected $1,200 from a prior customer, increasing cash and decreasing accounts receivable.
• May 20: Purchased supplies worth $1,000 on account, increasing supplies (asset) and accounts payable (liability).
• May 24: Billed a customer for services performed, increasing accounts receivable and service revenue.
• May 25: Sold stock to the brother for $5,000, increasing cash and common stock.
• May 28: Paid wages of $1,000, decreasing cash and increasing salaries expense.
• May 30: Paid office rent of $1,000, reducing cash and increasing rent expense.
• May 31: Paid dividends of $1,400, decreasing cash and retained earnings.

Adjusted Financial Positions After Transactions

By applying these transactions to the opening balances, we update the accounts as follows:

• Cash: starting at $1,540 + $10,000 (inheritance) - $5,100 (payables) + $5,000 (service fees) + $1,200 (collections) + $5,000 (stock sale) - $1,000 (wages) - $1,000 (rent) - $1,400 (dividends) = $4,440.
• Accounts Receivable: remained at $3,680 + $1,200 (collections) + $5,000 (billed) = $9,880.
• Supplies: increased by $1,000 on May 20.
• Accounts Payable: increased by $1,000 supplies purchased and decreased by $5,100 paid on May 7, resulting in an updated balance, assuming initial payable was $5,100, then paid, leaving a balance of $0.
• Common Stock: increased by $10,000 (inheritance) and $5,000 (stock sale), totaling $15,000.
• Service Revenue: increased by $5,000 (May 15) and $5,000 (May 24), totaling $10,000.
• Salaries Expense: $1,000 paid wages.
• Rent Expense: $1,000 paid rent.
• Dividends: $1,400 distributions paid to owner.

Financial Statements for May 2010

Income Statement

The income statement summarizes revenues and expenses, ultimately revealing net income for May 2010:

Statement of Retained Earnings

Starting with zero retained earnings (assuming initial zero), add net income and subtract dividends:

• Beginning Retained Earnings: $0
• Add: Net Income for May: $8,000
• Less: Dividends paid: $1,400
• Ending Retained Earnings: $6,600

Balance Sheet as of May 31, 2010

Based on updated account balances:

Stockholders' Equity

Note: The balances are approximated based on the described transactions, and actual figures may vary slightly depending on initial balances not specified in detail. Further detailed ledger entries should confirm these totals in practical accounting.

References

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