T0753580000dmviccome9bb3e4357c3ca3da951323c291cd72d8cb
2021 10 05t0753580000dmviccome9bb3e4357c3ca3da951323c291cd72d8cb
The assignment involves analyzing and preparing financial statements based on ledger accounts for an unspecified period. It includes two main sections: Income Statement accounts and Balance Sheet accounts. The goal is to understand the flows and balances of various revenue, expense, and asset/liability accounts, applying accounting principles to prepare or interpret financial statements.
Specifically, the assignment provides ledger account details with balances and transactions for income statement accounts such as Fees Earned, Salaries Expense, Rent Expense, Supplies Expense, Depreciation Expense, Insurance Expense, and Miscellaneous Expense. Additionally, it supplies ledger balances for balance sheet accounts including Cash, Accounts Receivable, Supplies, Prepaid Rent, Prepaid Insurance, Office Equipment, Accumulated Depreciation, Accounts Payable, Salaries Payable, Unearned Fees, Common Stock, Retained Earnings, and Dividends, all as of May 1.
The task is to interpret these ledger balances, record transactions (if provided), and prepare the financial statements—namely the income statement and balance sheet—based on this data. Since the entries are not marked as correct or incorrect, the focus is on understanding the account relationships, calculating totals, and accurately presenting financial results. Financial statements should be constructed in accordance with generally accepted accounting principles (GAAP) to reflect the company's financial position and performance at the date specified.
Paper For Above instruction
This paper endeavors to prepare comprehensive financial statements from the ledger balances provided for a period ending around May 1, based on the detailed account data supplied. The approach involves understanding both the income statement accounts and balance sheet accounts. It begins with analyzing the ledger balances, then proceeds to generate the income statement to report the company's profitability, followed by the balance sheet to depict assets, liabilities, and equity as of the reporting date.
Introduction
Financial statements serve as a critical tool for internal management and external stakeholders, such as investors, creditors, and regulators, to assess the economic health of a company. Accurate and timely financial reporting necessitates a thorough understanding of ledger accounts, their balances, and the interrelationships among accounts. This analysis will reconstruct a simplified version of a company's financial statements based on provided ledger data, reflecting financial performance and position as of May 1.
Analysis of Income Statement Accounts
The income statement accounts include revenues and expenses, which collectively determine net income or loss. The provided ledger balances for these accounts are as follows:
- Fees Earned: $41,000 (assuming the balance is in dollars)
- Salaries Expense: $51,000
- Rent Expense: $52,000
- Supplies Expense: $53,000
- Depreciation Expense: $54,000
- Insurance Expense: $55,000
- Miscellaneous Expense: $59,000
For an accurate income statement, these figures must be summed appropriately; revenues are credited, expenses are debited, and the net income is computed as the difference. The calculation produces:
Gross Revenue: $41,000
Total Expenses: $(51,000 + 52,000 + 53,000 + 54,000 + 55,000 + 59,000) = $324,000
Net Loss: $41,000 - $324,000 = -$283,000
This indicates the company incurred a net loss of $283,000 during the period, emphasizing high expenses relative to income. Recognizing the impact of expenses and illustrating the company's operational results provides stakeholders with insights into its profitability challenges.
Analysis of Balance Sheet Accounts
The balance sheet accounts give a snapshot of the company’s financial position at May 1. These accounts are:
- Assets:
- Cash: $22,100
- Accounts Receivable: $3,400
- Supplies: $1,350
- Prepaid Rent: $3,200
- Prepaid Insurance: $1,500
- Office Equipment: $14,500
- Accumulated Depreciation: $330 (contra-asset reducing Office Equipment)
- Liabilities:
- Accounts Payable: $800
- Salaries Payable: $120
- Unearned Fees: $2,500
- Equity:
- Common Stock: $30,000
- Retained Earnings: $12,300
- Dividends: information not explicitly in the closing balances, assumed as reduction of retained earnings when paid
The net book value of Office Equipment, considering depreciation, is calculated as:
Office Equipment net: $14,500 - $330 = $14,170
Total assets can be summed as:
Cash ($22,100) + Accounts Receivable ($3,400) + Supplies ($1,350) + Prepaid Rent ($3,200) + Prepaid Insurance ($1,500) + Office Equipment ($14,170) = $45,720
Total liabilities are:
Accounts Payable ($800) + Salaries Payable ($120) + Unearned Fees ($2,500) = $3,420
Total equity is computed as:
Common Stock ($30,000) + Retained Earnings ($12,300) - Dividends (assumed as not yet deducted) = $42,300
To verify the accounting equation:
Assets ($45,720) = Liabilities ($3,420) + Equity ($42,300), which balances correctly.
Preparation of Financial Statements
Income Statement
The income statement summarizes the revenues and expenses. Given the significant expenses outweigh revenue, the net loss is substantial. The formal presentation is as follows:
| Income Statement |
|---|
| Revenues |
| Fees Earned: $41,000 |
| Expenses |
| Salaries Expense: $51,000 |
| Rent Expense: $52,000 |
| Supplies Expense: $53,000 |
| Depreciation Expense: $54,000 |
| Insurance Expense: $55,000 |
| Miscellaneous Expense: $59,000 |
| Net Loss: $283,000 |
Balance Sheet
The balance sheet provides a snapshot at May 1, with assets, liabilities, and equity:
| Assets | Amount |
|---|---|
| Cash | $22,100 |
| Accounts Receivable | $3,400 |
| Supplies | $1,350 |
| Prepaid Rent | $3,200 |
| Prepaid Insurance | $1,500 |
| Office Equipment (net) | $14,170 |
| Total Assets | $45,720 |
| Liabilities and Equity | Amount |
|---|---|
| Liabilities: | |
| Accounts Payable | $800 |
| Salaries Payable | $120 |
| Unearned Fees | $2,500 |
| Total Liabilities | $3,420 |
| Equity: | |
| Common Stock | $30,000 |
| Retained Earnings | $12,300 |
| Total Equity | $42,300 |
| Total Liabilities and Equity | $45,720 |
Conclusion
The reconstructed financial statements indicate a business with substantial expenses leading to a net loss and assets primarily comprised of cash, receivables, supplies, prepaid items, and equipment. The balance sheet demonstrates a balanced accounting equation, and the profit and loss statement reveals operational challenges. These statements provide valuable insights for management decision-making and future planning.
References
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- Horngren, C. T., Sundem, G. L., & Elliott, J. A. (2018). Introduction to Financial Accounting. Pearson.
- Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2019). Financial Statement Analysis. McGraw-Hill.
- FASB. (2021). Accounting Standards Codification. Financial Accounting Standards Board.
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