Prepare The Statement Of Owner's Equity For Summertime Co

Prepare The Statement Of Owners Equity For The Summertime Corporation

Prepare the Statement of Owner’s Equity for the Summertime Corporation, year ended 12/31/2012, using the following information: Beginning Capital $10,000, Change in Net Income $5,000, Additional Investments $2,000, Withdrawals $1,000. Prepare the adjusting entries for the following transactions: 1. Salaries are usually paid on Fridays, $500. The month ended on Wednesday though. Prepare the accrual on Wednesday and the needed adjustment on Friday. 2. The supply closet started with $1,000 but a count revealed only $100 was left at month end. 3. Prepaid insurance was $300 for three months, January 1st, prepare the necessary adjustment at 1/31/2013.

Paper For Above instruction

Introduction

The preparation of financial statements and adjusting entries is a fundamental part of accounting that ensures the accuracy and completeness of a company's financial records. Specifically, the statement of owners' equity provides insight into changes in the owner's interest during a specific period. Meanwhile, adjusting entries are necessary to align revenues and expenses with the appropriate period, following the accrual basis of accounting. This paper comprehensively demonstrates the preparation of the statement of owners' equity for Summertime Corporation for the year ending December 31, 2012, along with detailed explanations of the relevant adjusting entries.

Statement of Owners’ Equity for Summertime Corporation

The statement of owners' equity begins with the opening balance, incorporates increases and decreases due to net income, investments, and withdrawals, to arrive at the ending owners’ equity.

Beginning Capital: $10,000

Add: Net Income for 2012: $5,000

Add: Additional Investments: $2,000

Subtotal: $17,000

Less: Withdrawals: $1,000

Ending Capital: $16,000

Statement of Owners' Equity for the Year Ended December 31, 2012:

| Description | Amount |

|------------------------|---------|

| Beginning Owners' Equity | $10,000 |

| Add: Net Income | $5,000 |

| Add: Investments | $2,000 |

| Less: Withdrawals | $1,000 |

| Ending Owners' Equity | $16,000 |

This statement reflects the growth in ownership equity driven primarily by net income and additional investments, offset by owner withdrawals.

Adjusting Entries

Effective financial reporting depends on timely and accurate adjusting entries that ensure compliance with the matching principle and revenue recognition. The following transactions require specific adjustments.

1. Salaries Payable Adjustment (Accrual for Wednesday):

Since salaries are paid on Fridays at $500, but the month ends on Wednesday, an accrual must be made for the wages earned but unpaid until Friday.

- Adjustment on Wednesday:

Debit Salaries Expense $500

Credit Salaries Payable $500

This recognizes the wages expense incurred up to Wednesday, even though payment is due later.

- Adjustment on Friday (Payment):

When salaries are paid, the entry would be:

Debit Salaries Payable $500

Credit Cash $500

This clears the liability created earlier.

2. Supplies Expense Adjustment:

Beginning supplies were $1,000. An inventory count indicates only $100 remains, implying usage of $900 during the period.

- Supplies used = $900

- Adjustment:

Debit Supplies Expense $900

Credit Supplies $900

This recognizes the supplies expense for the period, with remaining supplies valued at $100.

3. Prepaid Insurance Adjustment:

Prepaid insurance was $300 for three months starting January 1. By January 31, one month’s expense has been incurred.

- Monthly insurance expense = $300 / 3 = $100

- Adjustment at January 31:

Debit Insurance Expense $100

Credit Prepaid Insurance $100

This ensures that insurance expense aligns with the period, reducing prepaid insurance accordingly.

Conclusion

Accurate financial statements depend on proper accounting procedures, including precise calculation of owners' equity and meticulous adjustments to record incurred expenses and accrued revenues. The statement of owners’ equity for Summertime Corporation illustrates owners’ interest growth over 2012, while the adjusting entries for salaries, supplies, and insurance uphold the integrity of financial data. Proper application of these principles supports transparent and reliable financial reporting, which is essential for decision-making by stakeholders.

References

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