Question

On February 1, Tory began a service proprietorship with an initial cash investment of $2,000. The proprietorship provided $5,000 of services in February and received full payment in March. The proprietorship incurred expenses of $3,000 in February, which were paid in April. During March, Tory drew $1,000 against the capital account. In the proprietorship's financial statements for the two months ended March 31, prepared under the cash basis method of accounting, what amount should be reported as capital

Answer 1

Answer:

$6,000

Explanation:

The computation of the amount reported as a capital is shown below:

= Beginning capital + Investments + Income - Drawings

= $2,000 + $0 + $5,000 - $1,000

= $6,000

According to the cash basis accounting method, the excess of cash revenues over the cash expenses should be considered as an income

Hence, the amount reported as a capital is $6,000

hence, the third option is correct