Carla Vista Co. was organized on April 1, 2021, by Margaret Moore. Margaret is a good manager but a poor accountant. Margaret used information from the unadjusted tabular summary to prepare the following income statement for the quarter that ended March 31, 2022. Carla Vista Co. Income Statement For the Quarter Ended March 31, 2022 Revenues Rent revenue $79,680 Operating expenses Advertising expense $4,032 Salaries and wages expense 26,496 Utilities expense 1,440 Depreciation expense 768 Maintenance and repairs expense 2,688 Total operating expenses 35,424 Net income $44,256 Margaret knew that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data. You first look at the accounting records. In addition to the account balances reported in the income statement, the tabular summary contains these selected balances at March 31, 2022. Supplies $4,320 Prepaid Insurance 6,912 Notes Payable 19,200 You then make inquiries and discover the following. 1. Rent revenue includes advanced rentals for summer-month occupancy, $20,160. 2. There were $576 of supplies on hand at March 31. 3. Prepaid insurance resulted from the payment of a 1-year policy on January 1, 2022. 4. The mail on April 1, 2022, brought the following bills: advertising for week of March 24, $104; repairs made March 10, $1,000; and utilities $232. 5. Wage expense totals $280 per day. At March 31, 3 days’ wages have been incurred but not paid. 6. The note payable is a 3-month, 7% note dated January 1, 2022. Prepare a correct income statement for the quarter ended March 31, 2022.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Carla Vista Co. was organized on April 1, 2021, by Margaret Moore. Margaret is a good manager but a poor accountant. Margaret used information from the unadjusted tabular summary to prepare the following income statement for the quarter that ended March 31, 2022.
|
Carla Vista Co.
Income Statement For the Quarter Ended March 31, 2022 |
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|---|---|---|---|---|---|---|
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Revenues
|
||||||
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Rent revenue
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$79,680 | |||||
|
Operating expenses
|
||||||
|
Advertising expense
|
$4,032 | |||||
|
Salaries and wages expense
|
26,496 | |||||
|
Utilities expense
|
1,440 | |||||
|
Depreciation expense
|
768 | |||||
|
Maintenance and repairs expense
|
2,688 | |||||
|
Total operating expenses
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35,424 | |||||
|
Net income
|
$44,256 |
Margaret knew that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.
You first look at the accounting records. In addition to the account balances reported in the income statement, the tabular summary contains these selected balances at March 31, 2022.
|
Supplies
|
$4,320 | |
|---|---|---|
|
Prepaid Insurance
|
6,912 | |
|
Notes Payable
|
19,200 |
You then make inquiries and discover the following.
| 1. | Rent revenue includes advanced rentals for summer-month occupancy, $20,160. | |
| 2. | There were $576 of supplies on hand at March 31. | |
| 3. | Prepaid insurance resulted from the payment of a 1-year policy on January 1, 2022. | |
| 4. | The mail on April 1, 2022, brought the following bills: advertising for week of March 24, $104; repairs made March 10, $1,000; and utilities $232. | |
| 5. | Wage expense totals $280 per day. At March 31, 3 days’ wages have been incurred but not paid. | |
| 6. | The note payable is a 3-month, 7% note dated January 1, 2022. |
Prepare a correct income statement for the quarter ended March 31, 2022.
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