Balance Sheet and Income Statement: Example Problem
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Using the column headings provided below, show the effect if any, of the transaction entry or adjusting entry on the appropriate balance sheet category or on the income statement by entering the account name, amount, and indicating whether it is an addition (+) or subtraction (-). Column headings reflect the expanded balance sheet equation; items that affect net income should not be shown as affecting owners' equity.
1. The firm borrowed $1,000 from the bank; a short-term note was signed,
2. Merchandise inventory costing $500 was purchased; cash of $150 was paid and the balance is due in 30 days,
3. Employee wages of $900 were accrued at the end of the month,
4. Merchandise that cost $210 was sold for $300 in cash,
5. This month's rent of $500 was paid,
6. Revenues from services during month totalled $3,400. Of this amount, $1,000 was received in cash and the balance is expected to be received within 30 days,
7. During the month, suppliers were purchased at a cost of $370, and increased Supplies (asset) account. A total of $340 of supplies were used during the month.
8. Interest of $120 has been earned on a note receivable, but has not yet been received.
9. Determine the net income for the period.
10. Determine the current asset balance at the end of the period.
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This solution provides a balance sheet and income statement.
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