Use and Interpretation of Financial Statements
Aqua Swimming Club's financial statements follow.
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Aqua Swimming Club Income Statement For the Month ended November 30, 2014
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Revenues:
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Swimming lesson revenue
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$4,650
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Locker rental revenue
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1,275
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Total revenues Expenses:
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$5,925
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Salaries expense
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$1,125
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Supplies expense
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750
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Utilities expense
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450
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Total expenses
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2,325
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Net income
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$3,600
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Aqua Swimming Club Statement of owner's equity For the Month ended November 30, 2014
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Revenues:
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Owner's capital, October 31, 2014
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$34,975
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Investment by owner
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5,000
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Net income for the month
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3,600
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Subtotal
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$43,575
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Less withdrawals
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2,400
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Owner's capital, November 30, 2014
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$41,175
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Aqua Swimming Club Balance Sheet November 30, 2014
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Assets
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Liabilities
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Cash
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$ 7,125
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Accounts payable
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$13,350
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Accounts receivable
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900
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owner's equity
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Supplies
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750
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Owner's capital
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41,175
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Land
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15,750
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Building
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22,500
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Equipment
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7,500
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Total assets
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$54,525
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Total liabilities and owner's equity
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$54,525
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Aqua Swimming Club Statement of Cash Flows
For the Month ended November 30, 2014
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Cash flows from operating activities:
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Net income Adjustments to reconcile net income to net cash flows
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$3,600
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from operating activities:
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Increase in accounts receivable
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$ (400)
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Increase in supplies
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(550)
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Increase in accounts payable
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400
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(550)
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Net cash flows from operating activities
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$3,050
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Cash flows from investing activities:
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Sale of equipment
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$ 2,000
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Purchase of equipment
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(1,000)
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Net cash flows from investing activities
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1,000
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Cash flows from financing activities:
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Investment by owner
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$ 5,000
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Cash withdrawals
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(2,400)
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Net cash flows from financing activities
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2,600
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Net increase in cash
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$6,650
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Cash at beginning of month
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475
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Cash at end of month
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$7,125
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Required:
1. Accounting ConneCtion- Explain how Aqua Swimming Club's four statements relate to each other.
2. Business Application- Which statements are most closely associated with the goals of liquidity and profitability? Why?
3. Business Application- If you were the owner of this business, how would you evaluate the company's performance? Give specific examples.
4. ACCounting Connection- If you were a banker considering Aqua Swimming Club for a loan, why might you want the company to be audited by an independent CPA? What would the audit tell you?