Question

Started the business when it acquired $61,000 cash from the issue of common stock. Paid $21,300 cash to purchase inventory. Sold inventory costing $12,100 for $27,700 cash. Physically counted inventory; had inventory of $7,400 on hand at the end of the accounting period. Required a. Record the events in the T-accounts provided. b. Prepare an income statement and balance sheet.

Answer 1

Answer:

Part a

Transaction 1

Debit : Cash $61,000

Credit : Common Stock $61,000

Transaction 2

Debit : Merchandise  $21,300

Credit : Cash $21,300

Transaction 3

Debit : Cash  $27,700

Debit : Cost of Sales    $12,100

Credit : Sales Revenue $27,700

Credit : Merchandise   $12,100

Part b

Income Statement for the year

Sales                                                             $27,700

Less Cost of Sales

Opening Stock                              $0

Purchases                                 $21,300

Less Closing Inventory            ($7,400)    ($13,900)

Gross Profit                                                  $13,800

Balance Sheet as at end of the year

ASSETS

Inventory                                                     $7,400

Cash ($61,000 - $21,300 + $27,700)      $67,400

TOTAL ASSETS                                        $74,800

EQUITY AND LIABILITIES

Common Stock                                         $61,000

Net Profit                                                   $13,800

TOTAL EQUITY AND LIABILITIES           $74,800

Explanation:

Step 1 : Journal entries

Tip - there are two or more accounts affected by transactions. Identify these and record the Debit and Credit

Step 2 : Income Statement

The Income Statement accounts for Revenues / Incomes and Expenses. Identify Accounts for these and Record them in this statement.

Step 2 : Balance Sheet

The Balance Sheet accounts for Assets, Liabilities and Equity. Identify Accounts for these and record them in this statement.