Accounting Numbers
Accounting Numbers
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The Balance Sheet provides a snapshot of the financial condition of a company at the end of an accounting period. It shows the assets, liabilities, and owner’s equity in the business.
- 1. Identify each of the following as an asset (A), contra asset (C), liability (L), or equity (E). Insert the appropriate letter in each field
| A | cash |
| C | depreciation |
| C | equipment |
| A | inventory |
| L | loan |
| E | paid in capital |
| C | prepaid insurance |
| E | retained earnings |
| L | taxes owed |
| A | utility deposit |
- 2. In early December, Alice and Bob decided to open the Sample Cafe with $15,000 of their own money and $20,000 borrowed from a friend. They have spent $12,000 on equipment and furniture, and purchased $3,000 worth of inventory. Having put down a $2,500 deposit for a location on Main St., they will pay the first month’s rent when they open their doors on January 1st. HINT: Consider the change in each asset account, given the transactions above. Total Assets has been included as a second hint.
Create a balance sheet showing the financial position of the Sample Cafe as of December 31st Use the data above. Remember, Assets must equal Total Liabilities + Equity.
| SampleCafeBalanceSheet
As of December 31, 20xx |
||||
| Assets | Liabilities | |||
| Cash | $15,000 | Loans | $20,000 | |
| Deposits | $2,500 | Total Liabilities | $20,000 | |
| Furniture & Equip. | $12,000 | |||
| Depreciation | $2,500 | Equity | ||
| Inventory | $3,000 | Owner’s Equity | $15,000 | |
| Total Equity | $15,000 | |||
| Total Assets | $35,000 | Total Liab. & Equity | $35,000 | |
- 3. The Sample Café nearly broke even in the first month of business. Below is a summary of revenue and expenses for January. Starting with the balance sheet from December 31st, use the results to create an updated balance sheet for January 31st. HINT: Remember, Net Income is added to Owner’s Equity; Net Loss is subtracted from Owner’s Equity. Total Assets has been added as a hint.
| Sample Café
Income StatementSummaryMonth Ended January31,20xx |
||
| Revenue | $30,000 | |
| Cost of Goods Sold | $3,500 | $1,000 from inventory |
| Total Expenses | $27,000 | Includes equipment depreciation of $200. |
| Net Income | ($500) | |
| SampleCafeBalanceSheet
As of December 31, 20xx |
||||
| Assets | Liabilities | |||
| Cash | $30,000 | Loans | $20,000 | |
| Deposits | $2,500 | Total Liabilities | $20,000 | |
| Furniture & Equip. | $0 | |||
| Depreciation | $1,000 | Equity | ||
| Inventory | $1,000 | Owner’s Equity | $14,500 | |
| Total Equity | $14,500 | |||
| Total Assets | $34,500 | Total Liab. & Equity | $34,500 | |
- 4. What is the book value of the equipment at the end of January?
Because furniture and equipment are $12,000 I assume half of that is equipment. With the information above saying that $200 had depreciated $6,000-$200 would be a $5800 value for the equipment.
- 5. Alice and Bob had a small loss for the month. What happened to cash? Explain.
Inventory was $3,000 but in January it was calculated that $3,500 was spent. That means $500 dollars of inventory was not expected giving the loss of $500.
