Test V - Statement of Owner's Equity

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 the income statement, prepare the Statement of Owner's Equity

The Statement of Owner's Equity (Capital Statement)

• The proprietorship's capital account represents his or her ownership in the assets of the business.
• Part of the earlier discussion centered around the fact that whatever net income the business earns also belongs to the owner.
• The owner has the right either to withdraw the profits that the business earns or to reinvest the income in the business.
• Because some information used in the statement of capital is prepared after the income statement.
• Ask three question (same income statement)

     Example: Statement of Owners Equity

                                                        Shehgarlynn Laundry

                                                Statement of Owner's Equity

                                           For the Year Ended December  31, 2007

Shehgarlynn, Beginning Capital... Jan. 1, 200.........................................25,300

Add: Invesment........................................35,750

           Net Income .....................................45,490         81,240

Less: Shehgarlynn, Withdrawal.................                       10,650 

        Net Increase in Capital..................................................................... 70,590

Shehgarlynn, (Ending) Capital, Dec. 31, 2007....................................  $95,890

Note: Changes in the proprietor's capital from the beginning of the accounting period to end  of that periods.

1. A permanent increase in the proprietor's investment in the business. (addition to capital). 
2. A permanent decrease in the proprietor's investment in the business, (subtraction from capital.)
3. The proprietor's withdrawal of assets from the business, usually in anticipation of profits (subtraction from capital).
4. The recognition of net income for the period (addition to capital).
5. The recognition of a net loss for the period (subtraction from capital)

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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.

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