AC 113- Unit 3 Chapter 2

Learning Objectives After studying the chapter, your students should be able to: Describe the basic elements of a financial accounting information system. Analyze, record, and summarize transactions for a corporation’s first period of operations. Prepare financial statements for a corporation’s first period of operations. Analyze, record, and summarize transactions for a corporation’s second period of operations Prepare financial statements for a corporation’s second period of operations.

Accounting Formula Assets = Liabilities + Owners Equity

Jim Hamilton began a lawn care business in May by depositing $800 in a business bank account in exchange for capital stock.

Cash Supplies N/P Capital R.E. 1. 800 800 Investment

Borrowed $1,000 by issuing a note payable.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800

Paid cash for supplies, $50.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800 3. -50 50 Bal. 1,750 50 1,000 800

Performed lawn care services for cash and received $700.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800 3. -50 50 Bal. 1,750 50 1,000 800 4. 700 700 Revenue Bal. 2,450 50 1,000 800 700

Paid for an advertisement in a local newspaper, $150.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800 3. -50 50 Bal. 1,750 50 1,000 800 4. 700 700 Revenue Bal. 2,450 50 1,000 800 700 5. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550

Performed lawn care services for cash customers and received $420.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800 3. -50 50 Bal. 1,750 50 1,000 800 4. 700 700 Revenue Bal. 2,450 50 1,000 800 700 5. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 970

Paid wages to a part-time assistant, $85.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800 3. -50 50 Bal. 1,750 50 1,000 800 4. 700 700 Revenue Bal. 2,450 50 1,000 800 700 5. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 970 7. -85 -85 Wage Exp. Bal. 2,635 50 1,000 800 885

Performed lawn care services for cash and received $600.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800 3. -50 50 Bal. 1,750 50 1,000 800 4. 700 700 Revenue Bal. 2,450 50 1,000 800 700 5. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 970 7. -85 -85 Wage Exp. Bal. 2,635 50 1,000 800 885 8. 600 600 Revenue Bal. 3,235 50 1,000 800 1,485

At the end of May, Jim’s Lawn Care paid dividends of $100.

Cash Supplies N/P Capital R. E. 1. 800 800 Investment Bal. 800 800 2 Cash Supplies N/P Capital R.E. 1. 800 800 Investment Bal. 800 800 2. 1,000 1,000 Bal. 1,800 1,000 800 3. -50 50 Bal. 1,750 50 1,000 800 4. 700 700 Revenue Bal. 2,450 50 1,000 800 700 5. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 970 7. -85 -85 Wage Exp. Bal. 2,635 50 1,000 800 885 8. 600 600 Revenue Bal. 3,235 50 1,000 800 1,485 9. -100 -100 Dividend Bal. 3,135 50 1,000 800 1.385

Statement of Cash Flows Income Statement 1. Financing 800 4 Statement of Cash Flows Income Statement 1. Financing 800 4. Lawn Care Revenue 700 2. Financing 1,000 5. Advertising Expense –150 3. Operating –50 6. Lawn Care Revenue 420 4. Operating 700 7. Wage Expense –85 5 Operating –150 8. Lawn Care Revenue 600 6. Operating 420 Net Income $1,485 7. Operating –85 8. Operating 600 9. Financing –100 Increase in Cash $3,135

Jim’s Lawn Care Income Statement For the Month Ended May 31, 20— Fees earned $1,720 Operating expenses: Advertising expense $150 Wage expense $ 85 Total operating expenses $ 235 Net income $1,485 Retained Earnings Statement Net income for May $1,485 Less dividends $ 100 Retained earnings, May 31 $1,385

Jim’s Lawn Care Balance Sheet May 31, 20— Assets Cash $3,135 Supplies $ 50 Total Assets $3,185 Liabilities Notes payable $1,000 Stockholders’ Equity Capital stock $ 800 Retained earnings $1,385 $2,185 Total liabilities and stockholders’ equity $3,185

Jim’s Lawn Care Statement of Cash Flows For the Month Ended May 31, 20— Cash flows from operating activities: Cash received from customers $1,720 Cash paid for advertising $ (150) Cash paid for wages $ (85) Cash paid for supplies $ (50) Cash flows from operating activities $1,435 Cash flows from investing activities: Cash flows from financing activities: Cash rec. from issuing capital stock $ 800 Cash received from notes payable $1,000 Cash paid for dividends $ (100) Cash flows from financing activities $1,700 Net increase in cash during May $3,135 Cash as of May 1 $ –0– Cash as of May 31 $3,135