Problem Solving - Chapter 1
©Gayle M. Richardson, CPA
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
These balances represent the ending balances in the accounts after all of the transactions have been posted.
Think!
What is the ultimate goal? The question asks for Total Assets,
Supplies, Net income and Capital at the end of the year.
How can I get these answers and be certain my answers are correct?
If you think of all of the reports you have prepared, are there any that could be used as a template that would help you solve this problem?
YES --- the basic financial statementsIncome statementStatement of owner’s equityBalance Sheet
The Basic TemplatesIncome Statement
Revenue
Less Expenses
Net Income
Balance Sheet
Assets = L + OE
Assets Liabilities
_____
Total Liabil,
OE:
Cap, EB Total Assets Total L+ OE
Stmnt of OE
BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB
Now What?
Look back at the information given and put each number on the template in its proper place.
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
The Basic TemplatesIncome Statement
Revenue
Less Expenses
Net Income
Balance Sheet
Assets = L + OE
Assets Liabilities
_____
Total Liabil,
OE:
Cap, EB Total Assets Total L+ OE
Stmnt of OE
BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB
Advertising Expense 2,500
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
Now- Check it off the list!
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
Next - Accounts Payable -- Where does it belong?
The Basic TemplatesIncome Statement
Revenue
Less Expenses Advertising Expense 2,500
Net Income
Balance Sheet
Assets = L + OE
Assets Liabilities
_____
Total Liabil,
OE:
Cap, EB Total Assets Total L+ OE
Stmnt of OE
BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB
Accounts Payable 1,000
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
Now- Check it off the list!
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
Next - Accounts Receivable- What is it?
An Asset---Yes! The Balance Sheet is where it belongs!
The Basic TemplatesIncome Statement
Revenue
Less ExpensesAdvertising Exp 2,500
Net Income
Balance Sheet
Assets = L + OE
Assets Liabilities
Accounts Pay 1,000
OE:
Cap, EB Total Assets Total L+ OE
Stmnt of OE
BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB
Accounts Rec 4,000
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
Now- Check it off the list!
What next?
Repeat the process -- until you have checked off all of the items on the list!
Accounting is very systematic and methodical-----Step by Step!
Don’t worry --- once you have learned the basics you will be able to move at a quicker pace
Thank Goodness for Computers!!!!!
The Basic TemplatesIncome Statement
Revenue
Less ExpensesAdvertising Exp 2,500
Net Income
Balance Sheet
Assets = L + OE
Assets Liabilities
Accounts Pay 1,000
OE:
Cap, EB Total Assets Total L+ OE
Stmnt of OE
BBAdd cont ___________Sub-totalNI ___________ Sub-totalLess W/D___________EB
Accounts Rec 4,000
Cash 12,000
Fees Earned 13,000
Supplies ?
Rent expense 3,000
Remt Payable 1,000
11,000
?
4,000Now we have all of the numbers from the test in their places!
The Information Given to You:
Advertising expense $2,500 Accounts Payable 1,000 Accounts Receivable 4,000 Cash 12,000 Supplies ? Fees Earned 13,000 Rent Expense 3,000 Rent Payable 1,000 I Do, Capital 1/1/9 11,000 I Do, Capital 12/31/98 ? I Do, Withdrawals 4,000
And ---your list should look like this!
Notice that we transferred the Question marks too!
Now for the Bais Math!Income Statement
Revenue Fees Earned $ 13,000
Less ExpensesAdvertising Expense 2,500Rent Expense 3,000
Net Income
Balance Sheet
Assets = L + OE
Assets Liabilities
Cash $12,000 Accounts Payable $1,000 Accounts Rec. 4,000 Rent Payable 1,000
Supplies ?
OE:
Cap, EB Total Assets Total L+OE
Stmnt of OE
BB 11,000 Add cont ___________Sub-totalNI ___________ Sub-totalLess W/D______ 4,000EB ?
Now add & subtract!Start with the Income Statement--then SOE and, last, the Balance Sheet!
Total expenses 5,500
$ 7,500 ====
7 ,500
-0-
11,000
18,500
$14,500
14,500
__________ 2,000
$16,500$16,500
500
16,500--12,000-4,000 = 500
Now for the Bais Math!Income Statement
Revenue Fees Earned $ 13,000
Less ExpensesAdvertising Expense 2,500Rent Expense 3,000
Net Income
Balance Sheet
Assets = L + OE
Assets Liabilities
Cash $12,000 Accounts Payable $1,000 Accounts Rec. 4,000 Rent Payable 1,000
Supplies ?
OE:
Cap, EB Total Assets Total L+OE
Stmnt of OE
BB 11,000 Add cont ___________Sub-totalNI ___________ Sub-totalLess W/D______ 4,000EB ?
Now add & subtract! Circle the answers!
Total expenses 5,500
$ 7,500 ====
7 ,500
-0-
11,000
18,500
$14,500
14,500
__________ 2,000
$16,500$16,500
500
16,500--12,000-4,000 = 500
The Answers:
Total Assets = $16,500 Supplies = $500 Net Income = $7,500 Capital at year end = $14,500
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