AC 113- Unit 3

Chapter 2

Learning Objectives After studying the chapter, your students should be

able to:• Describe the basic elements of a financial accounting

information system.• Analyze, record, and summarize transactions for a

corporation’s first period of operations.• Prepare financial statements for a corporation’s first

period of operations.• Analyze, record, and summarize transactions for a

corporation’s second period of operations • Prepare financial statements for a corporation’s

second period of operations.

Accounting Formula

Assets = Liabilities + Owners Equity

Jim Hamilton began a lawn care business in May by depositing $800 in a business bank account in exchange for capital stock.

Cash Supplies N/P Capital R.E. 1. 800 800 Investment

Borrowed $1,000 by issuing a note payable.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 800

Paid cash for supplies, $50.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 8003. -50 50 Bal. 1,750 50 1,000 800

Performed lawn care services for cash and received $700.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 8003. -50 50 Bal. 1,750 50 1,000 8004. 700 700 Revenue Bal. 2,450 50 1,000 800 700

Paid for an advertisement in a local newspaper, $150.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 8003. -50 50 Bal. 1,750 50 1,000 8004. 700 700 Revenue Bal. 2,450 50 1,000 800 7005. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550

Performed lawn care services for cash customers and received $420.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 8003. -50 50 Bal. 1,750 50 1,000 8004. 700 700 Revenue Bal. 2,450 50 1,000 800 7005. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 970

Paid wages to a part-time assistant, $85.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 8003. -50 50

Bal. 1,750 50 1,000 8004. 700 700 Revenue Bal. 2,450 50 1,000 800 7005. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 9707. -85 -85 Wage Exp. Bal. 2,635 50 1,000 800 885

Performed lawn care services for cash and received $600.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 8003. -50 50

Bal. 1,750 50 1,000 8004. 700 700 Revenue Bal. 2,450 50 1,000 800 7005. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 9707. -85 -85 Wage Exp. Bal. 2,635 50 1,000 800 885

8. 600 600 Revenue Bal. 3,235 50 1,000 800 1,485

At the end of May, Jim’s Lawn Care paid dividends of $100.

Cash Supplies N/P Capital R.E. 1. 800 800 InvestmentBal. 800 8002. 1,000 1,000Bal. 1,800 1,000 8003. -50 50

Bal. 1,750 50 1,000 8004. 700 700 Revenue Bal. 2,450 50 1,000 800 7005. -150 -150 Adv. Exp. Bal. 2,300 50 1,000 800 550 6. 420 420 Revenue Bal. 2,720 50 1,000 800 9707. -85 -85 Wage Exp. Bal. 2,635 50 1,000 800 885

8. 600 600 Revenue Bal. 3,235 50 1,000 800 1,4859. -100 -100 Dividend Bal. 3,135 50 1,000 800 1.385

Statement of Cash Flows Income Statement1. Financing 800 4. Lawn Care Revenue 7002. Financing 1,000 5. Advertising Expense –1503. Operating –50 6. Lawn Care Revenue 4204. Operating 700 7. Wage Expense –855 Operating –150 8. Lawn Care Revenue 6006. Operating 420 Net Income $1,4857. Operating –858. Operating 6009. Financing –100Increase in Cash $3,135

Jim’s Lawn CareIncome Statement

For the Month Ended May 31, 20—Fees earned $1,720Operating expenses:Advertising expense $150Wage expense $ 85Total operating expenses $ 235Net income $1,485

Jim’s Lawn CareRetained Earnings Statement

For the Month Ended May 31, 20—Net income for May $1,485Less dividends $ 100Retained earnings, May 31 $1,385

Jim’s Lawn Care Balance Sheet

May 31, 20—AssetsCash $3,135Supplies $ 50Total Assets $3,185 LiabilitiesNotes payable $1,000 Stockholders’ EquityCapital stock $ 800Retained earnings $1,385 $2,185Total liabilities and stockholders’ equity $3,185

Jim’s Lawn Care Statement of Cash Flows

For the Month Ended May 31, 20— Cash flows from operating activities:

Cash received from customers $1,720Cash paid for advertising $ (150)Cash paid for wages $ (85)Cash paid for supplies $ (50)

Cash flows from operating activities $1,435 Cash flows from investing activities: Cash flows from financing activities:

Cash rec. from issuing capital stock $ 800Cash received from notes payable $1,000Cash paid for dividends $ (100)

Cash flows from financing activities $1,700 Net increase in cash during May $3,135 Cash as of May 1 $ –0– Cash as of May 31 $3,135