The Balance Sheet provides a snapshot of the financial condition of a company at the end of an accounting period. It shows the assets, liabilities, and owner's equity in the business.
1. Identify each of the following as an asset (A), contra asset (C), liability (L), or equity (E). Insert the appropriate letter in each field
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A
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cash
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C
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depreciation
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C
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equipment
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A
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inventory
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L
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loan
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A
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cash
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C
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depreciation
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C
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equipment
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A
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inventory
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L
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loan
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2. In early December, Alice and Bob decided to open the Sample Cafe with $15,000 of their own money and $20,000 borrowed from a friend. They have spent $12,000 on equipment and furniture, and purchased $3,000 worth of inventory. Having put down a $2,500 deposit for a location on Main St., they will pay the first month's rent when they open their doors on January 1st. HINT: Consider the change in each asset account, given the transactions above. Total Assets has been included as a second hint.
Create a balance sheet showing the financial position of the Sample Cafe as of December 31st Use the data above. Remember, Assets must equal Total Liabilities + Equity.
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SampleCafeBalanceSheet
As of December 31, 20xx
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Assets
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Liabilities
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Cash
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$15,000
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Loans
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$20,000
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Deposits
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$2,500
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Total Liabilities
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$20,000
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Furniture & Equip.
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$12,000
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Depreciation
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$2,500
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Equity
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Inventory
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$3,000
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Owner's Equity
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$15,000
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Total Equity
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$15,000
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Total Assets
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$35,000
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Total Liab. & Equity
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$35,000
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3. The Sample Café nearly broke even in the first month of business. Below is a summary of revenue and expenses for January. Starting with the balance sheet from December 31st, use the results to create an updated balance sheet for January 31st. HINT: Remember, Net Income is added to Owner's Equity; Net Loss is subtracted from Owner's Equity. Total Assets has been added as a hint.
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Sample Café
Income StatementSummaryMonth Ended January31,20xx
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Revenue
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$30,000
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Cost of Goods Sold
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$3,500
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$1,000 from inventory
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Total Expenses
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$27,000
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Includes equipment depreciation of $200.
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Net Income
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($500)
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SampleCafeBalanceSheet
As of December 31, 20xx
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Assets
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Liabilities
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Cash
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$30,000
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Loans
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$20,000
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Deposits
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$2,500
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Total Liabilities
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$20,000
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Furniture & Equip.
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$0
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Depreciation
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$1,000
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Equity
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Inventory
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$1,000
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Owner's Equity
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$14,500
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Total Equity
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$14,500
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Total Assets
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$34,500
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Total Liab. & Equity
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$34,500
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4. What is the book value of the equipment at the end of January?
Because furniture and equipment are $12,000 I assume half of that is equipment. With the information above saying that $200 had depreciated $6,000-$200 would be a $5800 value for the equipment.
5. Alice and Bob had a small loss for the month. What happened to cash? Explain.
Inventory was $3,000 but in January it was calculated that $3,500 was spent. That means $500 dollars of inventory was not expected giving the loss of $500.