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This guide provides insights into key financial statement components including unearned revenue, salary expenses, prepaid insurance, contributed capital, and owner distributions. It details how these elements affect a company's balance sheet, income statement, and statement of cash flows. With specific examples from Sugar & Spice Pastry Shop and Tom's Wear, learn how to interpret net income, assets, liabilities, and equity. This overview is essential for those looking to grasp fundamental accounting principles and the financial health of a business.
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a. Unearned Revenue: Liability—balance sheet • b. Salary Expense: Expense—income statement • c. Prepaid Insurance: Asset—balance sheet • d. Contributed capital: Owners’ equity—statement of changes in owners’ equity • e. Distributions to Owners: Owners’ equity—statement of changes in owners’ equity
f. Equipment: Asset—balance sheet • g. Sales revenue: Revenue—income statement • h. Cost of goods sold: Expense—income statement • i. Cash from investing activities: Asset—statement of cash flows • j. Depreciation Expense: Expense—income statement • k. Inventory: Asset—balance sheet
a. Revenue – Expenses = Net Income $350 – Expenses = $110 Expenses = $240
c. Liabilities + Contributed Capital + Retained Earnings = $600 $50 + Contributed Capital + $200 =$600 Contributed Capital=$350 d. Assets= Liabilities + Contributed Capital + Retained Earnings Assets= $60 + $350 + $140 Assets=$550
B. • 1. Details about the source and plans for the contributed capital • 2. Terms of the note • 3. Details about the vendor and any information used to make the rental decision • 4. The amount of water and electricity used and the effective rates • 5. Characteristics of the customers and the specific items sold • 6. Payroll details, including terms of employment • 7. Timing and decision criteria for distribution
Sugar & Spice Pastry ShopIncome StatementFor the Month Ended May 31, 2002 Revenue Sales $5500 Expenses Equip. Rental Expense $ 2000 Utility Expense 850 Salary Expense 425 Interest expenses 503325 Net income $ 2175
Sugar & Spice Pastry Shop • Income Statement • For the Month Ended May 31, 2002 Beginning contributed capital -0- Contributions during the year 7500 Ending contributed capital 7500 Beginning retained earning -0- Net Income for the year 2175 Dividends (560) Ending Retained earning $1,615 Total shareholder’s equity $9115
Tom’s WearBalance SheetAs of 2/28/01 Assets Liabilities + Shareholder’s Equity Cash $15,165 Notes payable 6000 Interest Payables 50 Capital 7500 Retained earnings 1615 Total assets $ 15,165 Total liabilities + Equity $ 15,165
Tom’s Wear, Inc.Statement of Cash FlowsFor the month ended 2/28/01 Cash from operating activities Cash from customers $ 5500 Cash paid for operating expense (3275) Total cash from operations $2225 Cash from investing activities -0- Cash from financing activities Cash from Owner’s Contribution 7500 Dividends (560) Borrowings 6000 Total Cash from Financing 12940 Net Increase in Cash $ 15165 Cash, Beginning Balance 0 Cash, ending Balance 15165
Transactions for Green Emerald Magazine Co.: Adjustments and balances • a. Supplies are reduced by $425 and supplies expense for $425 is recorded. • b. Prepaid insurance would be $2,100 at December 31, 2008. Insurance expense would be $1,500 for the year ending December 31, 2008. • c. +6,100 – 400 = $5,700 cash from financing activities • d. $750 • e. $10,975 • f. $11,725
