The trial balance of Dunn Service Center, Inc., on March 1, 2018, lists the entity’s assets, liabilities, and stockholders’ equity on that date.Account Title Debit CreditCash.......................................Accounts receivable................Accounts payable ...................Common stock.......................Retained earnings...................Total ......................................$26,0004,500$30,500$ 2,00010,00018,500$30,500BalanceDuring March, the business completed the following transactions:a. Borrowed $45,000 from the bank, with Dunn signing a note payable in the name of thebusiness.b. Paid cash of $40,000 to a real estate company to acquire land.c. Performed a service for a customer and received cash of $5,000.d. Purchased supplies on credit, $300.e. Performed a service for a customer and earned $2,600 of revenue on account.f. Paid $1,200 on account.g. Paid the following cash expenses: salaries, $3,000; rent, $1,500; and interest, $400.h. Received $3,100 on account.i. Received a $200 utility bill that will be paid next week.j. Declared and paid a dividend of $1,800.Requirements1. Use the T-account format to create the following accounts and balances:■ Assets—Cash, $26,000; Accounts Receivable, $4,500; Supplies, no balance; Land, nobalance■ Liabilities—Accounts Payable, $2,000; Note Payable, no balance■ Stockholders’ Equity—Common Stock, $10,000; Retained Earnings, $18,500; Dividends,no balance■ Revenues—Service Revenue, no balance■ Expenses—(none have balances) Salary Expense, Rent Expense, Interest Expense, Utilities Expense2. Journalize the preceding transactions. Key the journal entries by transaction letter.3. Post the transactions from the journal to the ledger and compute the balance in each account afterall the transactions have been posted.4. Prepare the trial balance of Dunn Service Center, Inc., at March 31, 2018.5. To determine the net income or net loss of the company during the month of March, prepare asingle-step income statement for the month ended March 31, 2018. List the expenses in orderfrom the largest to the smallest.
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.
The
Account Title Debit Credit
Cash.......................................
Accounts payable ...................
Common stock.......................
Total ......................................
$26,000
4,500
$30,500
$ 2,000
10,000
18,500
$30,500
Balance
During March, the business completed the following transactions:
a. Borrowed $45,000 from the bank, with Dunn signing a note payable in the name of the
business.
b. Paid cash of $40,000 to a real estate company to acquire land.
c. Performed a service for a customer and received cash of $5,000.
d. Purchased supplies on credit, $300.
e. Performed a service for a customer and earned $2,600 of revenue on account.
f. Paid $1,200 on account.
g. Paid the following cash expenses: salaries, $3,000; rent, $1,500; and interest, $400.
h. Received $3,100 on account.
i. Received a $200 utility bill that will be paid next week.
j. Declared and paid a dividend of $1,800.
Requirements
1. Use the T-account format to create the following accounts and balances:
■ Assets—Cash, $26,000; Accounts Receivable, $4,500; Supplies, no balance; Land, no
balance
■ Liabilities—Accounts Payable, $2,000; Note Payable, no balance
■ Stockholders’ Equity—Common Stock, $10,000; Retained Earnings, $18,500; Dividends,
no balance
■ Revenues—Service Revenue, no balance
■ Expenses—(none have balances) Salary Expense, Rent Expense, Interest Expense, Utilities Expense
2. Journalize the preceding transactions. Key the
3.
all the transactions have been posted.
4. Prepare the trial balance of Dunn Service Center, Inc., at March 31, 2018.
5. To determine the net income or net loss of the company during the month of March, prepare a
single-step income statement for the month ended March 31, 2018. List the expenses in order
from the largest to the smallest.
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