Chapter 1, Problem 7APSA

To determine

Concept introduction:

Account Payables: For delivered goods or services, the cash owed by the business that they are required to pay to their suppliers is called the account payables. In the balances sheet, the account payables are shown as liabilities.

Account Receivables: For delivered goods or services, the cash owed by the customer that they need to pay to the business is called account payables. In the balances sheet, the account payables are shown as assets.

Asset: A resource which will generate a cash flow in a future for an individual, company or corporation. It has an economic value and helps to reduce expenses, benefits the firm’s operations and improve sales. Asset is mentioned on the credit side of the balance sheet.

Liabilities: During the course of the business operations, an obligation or the company’s debit that arises is known as liability. Liabilities such as mortgages, accounts payables, accrued expenses and loans are recorded on the right hand side of the balance sheet.

Equity: Equity is the value of an asset less the amount of all liabilities on that asset. It can be represented with the accounting equation: Assets -Liabilities = Equity.

Income Statement: The statement in which the profit and loss of a company is mentioned is called the income statement. In the income statement the revenues, expenses, net income, profit and loss will be mentioned. It is also a statement which gives us the effect of expenses and profit in a stipulated time period.

1. To write: The statement showing addition and subtraction of each transaction for the month of May.

Explanation of Solution

Assets =Liabilities + Equity
Date	Cash	Accounts Receivable	Office Equipment	Accounts payable	G.Gram Capital	G.Gram Withdrawals	Revenues	Expenses
May 1	$40,000				$40,000
May 1	($2,200)							$2,200
May 3			$1,890	$1,890
May 5	($750)							$750
May 8	$5,400						$5,400
May 12		$2,500					$2,500
May 15	($750)							$750
May 20	$2,500	($2,500)
May 22		$3,200					$3,200
May 25	$3,200	($3,200)
May 26	($1,890)			($1,890)
May 27				$80				$80
May 28	($750)							$750
May 30	($300)							$300
May 30	($280)							$280
May 31	($1,400)					$1,400
Total	$42,780	$0	$1,890	$80	$40,000	$1,400	$11,100	$5,110

To determine

2. To write: The income statement for the month of May

Explanation of Solution

Particulars		Amount
Revenue		$11,100
Total Revenues (A)		$11,100
Salaries expense		$1,500
Telephone expense		$300
Rental expense		$2,200
Selling and administrative expense		$1,110
Total Expense (B)		$5,110
Net Income (A-B)		$5,990

Owners Equity account for the month of May

Particulars	Amount	Amount
Owners Capital
Opening Capital	$0
Add: Invested during the year	$40,000
Add: Profit during the year	$5,990
	$45,990
Less: A. Armani Withdrawals	$1,400	$44,590

Balance Sheet for the month of May

Particulars	Amount	Amount
Owners Capital		44,590
Current Liabilities
Accounts Payable		$80
Total		$44,670
Fixed Assets
Equipment		$1,890
Current Assets
Accounts Receivable		$0
Cash		$42,780
Total		$44,670

To determine

3. To write: The cash flow for the month of May

Explanation of Solution

Particulars	Amount	Amount
Cash from operating activities		$6,070
Cash used by investing activities		($1,890)
Cash from financing activities
Capital Introduced	$40,000
Amount withdrawn	$1,400	$38,600
Net Increase/(decrease) in cash		$42,780
Add: Opening Cash Balance as on Dec.31, 2016		$0
Closing Cash Balance as on Dec.31, 2017		$42,780