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Exercise 8-1Effect of accounting events on the financial statements of a sole proprietorship
A sole proprietorship was started on January 1, 2014, when it received $30,000 cash from Alex Ard, the owner. During 2014, the company earned $50,000 in cash revenues and paid $22,300 in cash expenses. Ard withdrew $10,000 cash from the business during 2014.
Required
Prepare the income statement, capital statement (statement of changes in equity), balance sheet, and statement of cash flows for Ard’s 2014 fiscal year.
Expert Answer
ALEX ARD
INCOME STATEMENT
For the year ended December 31st, 2014
REVENUES:
Cash revenues 50,000
EXPENSES:
Cash expenses 22,300
—————–
NET INCOME 27,700
—————–
STATEMENT OF CHANGES IN OWNERS EQUITY:
Alex Ard capital, January 1
Investments during the year 30,000
Net income for the year 27,700
Total 57,700
Less:Withdrawals 10,000
Net increase in owners equity 47,700
Alex Ard, Capital, December 31 47,700
Balance Sheet:
ALEX ARD
BALANCE SHEET
As of December, 31, 2014
ASSETS
Current Assets
Cash 47,700
Total assets 47,700
LIABILITIES AND OWNERS EQUITY
CAPITAL 47,700
Total Liabilities and Owners equity 47,700
STATEMENT OF CASH FLOWS FOR ARD’S 2014 FISCAL YEAR:-
Cash flow from operating activities:
Cash received from customers 50.000
Cash paid for expenses (22,300) 27,700
Cash flow from financing activities:
Cash paid to owner-withdrawal (10,000) (10,000)
Net increase in cash for the year 17,700
Add: Cash-January1,2014 30,000
Cash-December 31, 2014 47,700
