Homework Lance
ACC 502
Week 1 Assignment
Toys, Inc began operations on December 31, 2019 with the following transactions:
1. Purchased equipment for $15,000
2. Purchased inventory on account for $6,000
3. Issued common stock for $20,000
Toys, Inc’s balance sheet including those transactions as of December 31, 2019, was as follows:
Toys, Inc.
Balance Sheet
As of December 31, 2019
Assets:
Cash $ 5,000
Receivables –
Inventory 6,000
Land –
Property Plant and Equipment 15,000
Total Assets $ 26,000
Liabilities and Equity:
Accounts Payable $ 6,000
Note Payable –
Common Stock 20,000
Retained Earnings –
Total liabilities and stockholders’ equity $ 26,000
During January 2020, the company had the following transactions:
Example: Made payments of $4,000 on outstanding accounts payable
1. Sold $2,000 of inventory to customers for $3,000 in cash.
2. Purchased $2,500 of new inventory for cash
3. Sold $3,500 of inventory to customers on account for $5,500.
4. During the month, received $3,500 from customers as payments on their accounts
5. Borrowed $20,000 from the bank and issued stock for $5,000 to purchase land for $25,000 for a future warehouse
6. Paid employees $2,000 for payroll
Required:
1. Record the January 2020 transactions by adding and subtracting amounts in the rows of the following table in a way that the row totals represent the end of the month balances in the financial statements. (fill in the shaded area as needed)
2. Explain the main characteristics of the balance sheet and the income statement and the relationship between those two statements.
Balance
Transaction Number
at 12/31/19Example123456Total
Cash $ 5,000 (4,000) 3,000 (2,500)
3,500
(2,000) $ 3,000Receivables –
5,500 (3,500)
2,000Inventory 6,000
(2,000) 2,500 (3,500)
3,000Land –
25,000
25,000Property Plant and Equipment 15,000
15,000Total Assets $ 26,000
$ 48,000
Accounts Payable $ 6,000 (4,000)
$ 2,000Note Payable –
20,000
20,000Common Stock 20,000
5,000
25,000Retained Earnings –
1,000 1,000Total Liabilities and Equity $ 26,000
$ 48,000
Check (must equal zero)
–
Income Statement
Sales
3,000 5,500
$ 8,500Cost of Goods Sold
2,000 3,500
5,500Payroll expenses
2,000 2,000Net Income
$ 1,000
Requirement 2
Characteristics of a Balance Sheet
1. Assets
– All of the things of value that a company owns. These can include cash, accounts receivable, inventory, and property. A company’s assets are also referred to as its ‘equity’ if it’s a sole proprietorship or partnership because this is an accounting term that means the difference between the assets and liabilities.
– A balance sheet lists all assets by category on one side with their corresponding value listed on the other side.
– Profit and loss and the values of assets are not listed separately on a balance sheet.
2. Liabilities
– What an investor, company or individual owes to somebody else for money. Loans, mortgages, debts and other borrowed money are liabilities of the company. This is also known as a ‘principal’.
– A balance sheet lists all liabilities by category on one side with their corresponding value listed on the other side.
3. Equity- the difference between assets and liabilities.
– Net assets are referred to as equity, because when you add up all of a company’s assets and then subtract all of its liabilities, what remains is the amount that belongs to the owner’s of the business.
– The total equity is calculated by subtracting total liabilities from total assets.
– Equity is the amount of money that a company has to invest in its business.
– Often a company will have more assets than liabilities, meaning that their owner(s) can use their equity to make new debts without having to pay back old debts.
– When you add up all of a company’s assets, and then subtract all of its liabilities, what remains is the amount that belongs to the owner’s of the business.
Characteristics of an Income Statement
1. Expenses- Everything a company spends. Expenses can include costs for wages, supplies, marketing, and travel. They also may include depreciation charges which are allocations of the cost of machinery and equipment over the anticipated useful life of the assets.
2. Revenues- All money received by a company regardless of the source. For example, if a company is paid $2,000 for a job, it counts that $2,000 in revenues. If the company sold a product for $500 and had to pay out another $500, then revenues are listed as $1,000.
3. Net Income- Revenues minus expenses amounting to profit or loss.
4. Earnings- The difference between revenues and expenses.
5. Net Income- Earnings minus interest paid divided by the number of shares outstanding.
6. Retained Earnings- The difference between earnings and dividends which is invested in plant, equipment and/or other capital assets of the business so they can be used to increase net assets without requiring additional equity funding or loans.
7. Net Income per Share- Net income divided by the number of shares outstanding.
8. Statement of Cash Flows- The movement of cash in and out of a company such as through sales, investments, and loans.
Relationship between the Balance Sheet and the Income Statement
Relationship between the Balance Sheet and the Income statement
The relationship that exists between the two statements is that the balance sheet records the financial condition of a company at one point in time and therefore is a snapshot of what has been going on with a company. The income statement, on the other hand, shows how business cash flows have been for a period of time and is recorded at a more detailed level.
The Balance Sheet is used to record financial condition while the Income Statement is used to show how cash flows from business operations during a period of time. Both statements show the same information but from different perspectives.
The balance sheet reports on the assets, liabilities, and owner’s equity of a business as of a certain date while the income statement reports on the revenues and expenses of a business over time period.
Every time period that appears in the income statement is also necessary in the balance sheet.
Items that appear in the income statement are included in the balance sheet, and vice versa.
The balance sheet also provides information about cash flows; for instance, when a business purchases inventory, it is reflected on the asset side of the balance sheet.
Another example would be a payment which is made from an asset, such as cash or receivables, to another account such as a loan or new equipment. The specific balance sheet numbers do not change but they can be rearranged within their categories.
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