Prepare An Income Statement From The Following Information
From The Following Information Please Prepare An Income Statement St
From the following information, please prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet for the month of May of the current year. Cash $12,000 Accounts Receivable 16,000 Supplies 350 Equipment 16,500 Notes Payable $13,000 Accounts Payable 12,000 S. Jones, Capital 18,000 S. Jones, Drawing 550 Service Revenue 6,000 Telephone Expense 350 Rent Expense 1,100 Advertising Expense 2,150 $49,000 $49,000
Paper For Above instruction
The assignment requires preparing three key financial statements for the month of May of the current year, based on the provided financial data: an Income Statement, a Statement of Owner’s Equity, and a Balance Sheet. These financial statements are crucial for assessing the financial health and performance of the business over the specified period.
Introduction
Financial statements serve as essential tools for business owners, investors, creditors, and other stakeholders to evaluate a company's performance and financial position. The Income Statement, also known as the Profit and Loss Statement, shows the company's revenues and expenses, leading to net income or net loss. The Statement of Owner’s Equity reflects changes in the owner’s capital account over the period, considering investments, withdrawals, and net income. The Balance Sheet presents the company's assets, liabilities, and owner’s equity at a specific point in time. Together, these documents provide a comprehensive snapshot of the company's financial health.
Preparation of the Income Statement
The Income Statement starts with total revenues and subtracts total expenses to determine net income. Based on the data provided:
Revenues:
- Service Revenue: $6,000
Expenses:
- Telephone Expense: $350
- Rent Expense: $1,100
- Advertising Expense: $2,150
Total Expenses = $350 + $1,100 + $2,150 = $3,600
Net Income = Revenues – Expenses = $6,000 – $3,600 = $2,400
Statement of Owner’s Equity
Beginning owner’s capital (as of start of May), plus net income, minus withdrawals:
Beginning Capital: $18,000 (assuming this is the opening owner’s equity)
Add: Net Income: $2,400
Less: Drawings: $550
Ending Owner’s Equity = $18,000 + $2,400 – $550 = $19,850
Preparation of the Balance Sheet
Assets:
- Cash: $12,000
- Accounts Receivable: $16,000
- Supplies: $350
- Equipment: $16,500
Total Assets = $12,000 + $16,000 + $350 + $16,500 = $44,850
Liabilities:
- Notes Payable: $13,000
- Accounts Payable: $12,000
Total Liabilities = $13,000 + $12,000 = $25,000
Owner’s Equity:
- S. Jones, Capital: $18,000
- Plus: Ending Owner’s Equity: $19,850
Alternatively, in the accounting equation:
Assets = Liabilities + Owner’s Equity
Assets ($44,850) = Liabilities ($25,000) + Owner’s Equity ($19,850)
Conclusion
The three financial statements—Income Statement, Statement of Owner’s Equity, and Balance Sheet—offer vital insights into the operational performance and financial status of the business for May. The business generated a net income of $2,400, contributing to an increase in owner’s equity to $19,850 by the month's end. The company's assets are primarily composed of receivables and equipment, while liabilities include notes and accounts payable, indicating manageable obligations relative to assets and equity.
References
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