Sanyu Sony started a new business and completed these transactions during December.
|Dec.||1||Sanyu Sony transferred $65,000 cash from a personal savings account to a checking account in the name of Sony Electric in exchange for its common stock.|
|2||The company rented office space and paid $1,000 cash for the December rent.|
|3||The company purchased $13,000 of electrical equipment by paying $4,800 cash and agreeing to pay the $8,200 balance in 30 days.|
|5||The company purchased office supplies by paying $800 cash.|
|6||The company completed electrical work and immediately collected $1,200 cash for these services.|
|8||The company purchased $2,530 of office equipment on credit.|
|15||The company completed electrical work on credit in the amount of $5,000.|
|18||The company purchased $350 of office supplies on credit.|
|20||The company paid $2,530 cash for the office equipment purchased on December 8.|
|24||The company billed a client $900 for electrical work completed; the balance is due in 30 days.|
|28||The company received $5,000 cash for the work completed on December 15.|
|29||The company paid the assistant's salary of $1,400 cash for this month.|
|30||The company paid $540 cash for this month's utility bill.|
The company paid $950 cash in dividends to the owner (sole
Prepare an income statement, statement of rettained earings, balance sheet, and statement of cash flows for the current month.
Financial Statements: These are records that are prepared by companies summarizing the activities that took place in the organization. All relevant and material facts are included in these statements in a manner that is easily understandable by its users. The users are investors, analysts and creditors.
Income Statement: Income Statement is one of the financial statements prepared by companies to report the revenues and expenditures occurred during an accounting year. The resultant value is the net profit/ (loss) generated by the end of the accounting year.
Statement of Retained Earnings: It is a statement of change in the company’s retained earnings. It is a statement representing the income left after paying off all the financial obligations.
Balance Sheet: Balance Sheet is another financial statement prepared by the company to report the assets owned and liabilities owed by the company at a particular point of the year. It is useful in measuring the company’s financial position as on that date.
Statement of Cash Flows: It is a statement of change in the company’s cash and cash equivalents by providing information about the inflow and outflow of cash of the company. It is also a part of the financial statements prepared by the company by breaking it down to operating, financing and investing activities.
Direct Method of accounting for operating activities: Operating activities are computed using the direct method because all the major receipts and expenditures of cash is through this section of the cash flow statement.
Step 1 of 4
Based on the transactions that took place in the month of December, the income statement for the month is prepared below-
The income statement is prepared by deducting revenues from the expenses incurred. The revenues are computed as. The company received $1,200 on December 6 for the services provided, $5,000 for the services provided on December 15 and will be receiving $900 the following month for the services provided on December 24. The expenses that were incurred are recorded as it was incurred and deducted from revenues generated. The resultant value is Net Profit.
Step 2 of 4
Based on the transactions that took place in the month of December, the statement of retained earnings for the month is prepared below-
The statement of retained earnings is prepared after considering the starting balance of retained earnings. As the business is just started this month, the beginning balance is $0. The net income computed above is added to this amount and the dividends paid on December 31 is deducted. The resultant amount is the ending balance of retained earnings.
Step 3 of 4
The retained earnings that were computed above are shown on the liabilities side of balance sheet. The liabilities is computed as. The cash balance is computed on the basis of cash flows for the year. The accounts receivable is the amount that is receivable from a client for rendering services on December 24. The supplies and equipment purchased is written on the balance sheet. Based on the transactions that took place in the month of December, the balance sheet as on December 31 is prepared below-
The balance sheet is prepared on the basis of the assets and liabilities of the company. As the business is just started this month, the investment in the company is added to the cash account as well as the common stock account. The electrical equipment purchased is included in the assets side of the balance sheet and the amount is paid is deducted from cash account and the remaining unpaid amount is added to accounts payable account. The office supplies purchased is included in the assets side of the balance sheet and the amount is paid is deducted from cash account.
The office equipment purchased is included in the assets side of the balance sheet and the amount is paid is deducted from cash account. The office supplies purchased is included in the assets side of the balance sheet and the amount that is unpaid is added to accounts payable account. The amount that is receivable from client for the services is added to the accounts receivable account. The retained earnings that were computed above are shown on the liabilities side of balance sheet.
Step 4 of 4
Based on the transactions that took place in the month of December, the statement of cash flows for the month is prepared below-
The statement of cash flows is prepared on the basis of the cash inflows and outflows of the company. Based on the monetary transactions that took place during the month, the cash flow statement is prepared.