Test VI - Balance Sheet

The following are the transactions of Shehgarlynn Repair Service. Journalize the following transactions in proper form. The chart of accounts includes: Cash and Bank; Prepaid Rent; Supplies; Repair  Equipment; Accounts Payable; Accounts Receivable; Shehla, Capital; Shehla, Withdrawal; Repair Fees Earned; Salaries Expense; Advertising Expense; and Supplies Expense.

January 1, 2013, Shehla invested $15,000 cash and $5,000 of repair equipment in the business. (The cash deposit to Bank of America checking account No.0013447)

January 1, 2013, Paid twelve (12) month's rent in advance, $500 per month. check no. 001

January 5, 2013, Bought repair supplies from Arden Co. on account, amounting of $500. (These  supplies have not yet been consumed or used up).

January 10, 2013, Perform repair work, received $750 cash, and had to bill Gary Co. for remaining  balance of $250. (cash was deposited to the Bank of America)

January 18, 2013, Shehla paid her home telephone bill, amounting of $120, check no. 002

January 20, 2013, Advertising bill for $500 from Jerry Co. received but payment not due yet.   (advertising has already appeared in the newspaper).

January 24, 2013, Paid salary to Shehla as a manager of the company, amounting of $5,000, check no. 003

January 30, 2013, Paid insurance for 1 year in advance, $100 per month. check no. 004.

After  preparing statement of owner's equity, prepare the Balance Sheet.

Balance Sheet

The balance sheet shows the financial position of a business on a specific date. It represents a detailed presentation of the accounting equation.

Basic Accounting Equation: 

                  Assets  =  Liabilities  + Owner's Equity (Capital)

Expanded Accounting Equation

      Assets = Liabilities  +  (Capital - Withdrawal) + (Revenue  -  Expenses)

Note: You should Remember the following:

• The balance sheet, which consists of a detailed listing of the various assets, liabilities, and proprietor's capital on a specific date, shows the financial position and conditions of the organization at that moment in time.
• The balance sheet relies on the preparation of the statement of capital  for the determination of the new proprietor's capital balance.
• The statement of capital in turn relies on the income statement preparation for the determination of the change in capital for the particular period.
• Because of these relationships, the order of preparation of the financial statements never change.

There are two forms that the balance sheet takes:

1. Report form
2. Account form

Although both forms provide identical information their appearance differs according to the use to be made of the forms by the accountant.

What are Financial Statement?

Financial Statements - are prepared at least once a year. This is known as the accounting period.
An accounting period may follow the calendar, in which case it begins on January 1 and end on December 31 of the same year.

The business is then said to have a calendar year accounting period.

Any business that has an accounting period consisting of 12 months other than a calendar year is generally known as a fiscal-year accounting period.

Financial Statement is also known as Interim Reports.

Basically three financial reports are prepared:

1. Income Statement - A financial statement that presents revenue and expenses and the net income or loss for a specific period of time.
2. Statement of Owner's Equity (Capital Statement) - A financial statement that shows the change in the value of the ownership in a business over a period of time. The change in capital is due to income or loss and withdrawals by the owner over a period of time.
3. Balance Sheet - A financial that shows the financial position of a business at a particular moment in time a detailed presentation of the assets, liabilities, and owner's equity. Actually, it is a detailed accounting equation, in which the total value of assets is equal to the liabilities plus proprietor' capital.

Financial Accounting (7th Edition) by Libby, Robert/ Libby, Patricia/ (Google Affiliate Ad)